When discussing Forex, technical analysis is the term for the use of indicators resulting from past price movements in forecasting future price movements. There are many financial indicators to choose from when conducting Forex technical analysis. Each indicator has its own strong points and a Forex trader can decide to use only one or several at the same time in order to help him reach a profitable judgment regarding the trade he is interested in placing.
Momentum indicators are one instrument employed consistently in Forex Technical analysis and they are very useful tools. Moving averages, or MA’s, can be adapted to be momentum indicators as well as Support/Resistance markers. With Forex technical analysis, we can plot multiple moving averages of different time spans on our charts and thus create a useful momentum indicator referred to as the moving average crossover.
Forex Technical Analysis
There are two types of moving average crossovers used in Forex technical analysis. The first type involves a given price which crosses over or under a given moving average.
The second type of moving average crossover is the shorter-duration moving average which cross over or under longer, slower moving averages.
Using Forex technical analysis, we can understand under what conditions a moving average crossover signals a possible momentum and trend change and how to identify a ‘signal’ from a trader’s ‘secret proprietary system.’
There are several other popular technical indicators used in Forex trading. To the ear of the novice Forex trader, the names of these indicators may sound strange indeed. Trend lines, Bollinger Bands, Fibonacci Retracements, Stochastic Oscillators. But as intimidating as these names are, they are really quite easy to apply and it is possible for traders with any level of experience to incorporate these indicators into their daily trade-decision process. In fact, with the latest generation of trading platforms fully capable of performing the necessary calculations for you, you certainly don’t have to be a mathematician in order to generate accurate market charts.
Forex technical analysis can be uniquely applied for different traders. Traders have their own interpretation of where they see trends and support and they also have their own ideas about setting up their indicators. These differences are collectively applies as a trading system that is custom made to your specific requirements. You can ask ten different traders what their strategy is and there is no doubt whatsoever that you will hear about ten dissimilar systems utilizing totally diverse signals. This diversification is what creates a market and allows it to continue.
Technical analysis is very useful in Forex trading but it is important to note that this tool makes up only one portion of what you need to know when trading Forex. Understanding technical analysis will give the charts some meaning when you look at them and help you understand why certain price movements occurred. But there is more to know if you want to come out a winner in Forex. In depth knowledge of Forex markets and what makes Forex work coupled with considerable practice are needed before you can hope for a profitable outcome.