Best Top 4 Technical Indicators In Forex Tips You Will Read This Year To Win

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technical analysis forex
Technical Analysis of Forex Trading

 

                                             

The rules of technical analysis and tools are almost similar in both stock and forex markets. Once learnt correctly it can be used stock as well as forex market. Typically technical analysis is based on two dimensional (vertical axis indicating price and horizontal axis indicating time)charts/graphs prepared from past movement of price. Since past movements of price trend cannot give 100 per cent guarantee of future movement of price, technical analysis is also not free from mistakes.

The beginners in forex market often get confused which technical indicators to include in their strategy specially when there are hundreds of technical indicators are available. They often ask as well, how many indicators to include in their strategy to make it superb.


(adsbygoogle = window.adsbygoogle || []).push({}); The basic truth is that although there are numerous technical indicators available in the market, one cannot use them all in the strategy. Trying to include a lot of indicators in your strategy will only make your strategy complicated leading to confusion and worst trading decisions. Therefore, one should focus on a few basic technical indicators that can make your strategy best and highly effective.

Four appropriate and most effective indicators used by most traders are summarized below for the beginners which can be of great help :-

  • RSI( Relative Strength Index) : Developed by J.Welles Wilder, RSI is an oscillator type indicator moving up and down in response to a change in the price movements. The indicator is widely trusted all over the world to be the most accurate indicator to guess the strength of current market trend. RSI is very important for the traders to know whether the market is in overbought or oversold condition so that trading strategy can be prepared accordingly. 

  • Stochastic : Theoretically, Stockhastic describes an approach to anything that involves probability. It may be described as an oscillator/indicator obtained by comparing the closing price of a currency/security to the range of its prices over a certain period of time. 

  • The Bollinger Band : It indicates whether the prices are high or low on a relative basis. This is one of the most powerful tools available to the technical traders/investors. Although it is believed that a bollinger band cannot indicate the exact buy & sell singnals but it does indicate whether the prices are high or low. 

  • Moving Averages : This is one of the oldest form of technical analysis most commonly used by traders and investors. This tool helps to reduce market ‘noise’(rate fluctuations) which makes it difficult for traders to assess and analyse ‘real time exchange rate data’ making it easier to identify potential ‘market rate trends’ from the normal rate fluctuations common to all currency pairs. Having a knowledge of ‘moving averages’ is vital as it relates to measurement of other technical tools — Stochastic and Bollinger Band. 

These four basic indicating tool are powerful enough to make your strategy a wonderful one irrespective of the fact that there are various other strong and powerful tools available with the professionals and experts. It’s not that using these four tools will make 100 per cent protected in the volatile market and you will never incur a loss. 

In fact, using these tools make your strategy simple, easily understandable and effective. Implementing these tools in trading  strategy over the years can make you understand its utility and action and repeated analysis of mistakes, finding out the circumstances when these indicators work best will make you more confident day after day.

Another problem with technical analysis is that many traders believe that the market can be predicted simply on the basis of price. They just continue to analyse the patterns, charts and graphs. In reality, it’s absurd to predict the market simply by comparing the price and patterns of past and present. Actually, the market moves not on the basis of price alone but on a number of other decisive factors including economic policies, political developments, climatic conditions.

It’s important to know how the traders in the market may behave as far as these factors are concerned leading to a change in the price of a currency. We must know, price cannot move the market but action by traders does. Technical analysis simply indicates the time and price to enter and exit a trader and where to put stop loss.