Forex Technical Analysis: Part 2

Moving Averages and Trend Indicator

Oscillators are a great help when trades are done using the ranging market. While the oscillators offer many profitable trades, many great traders make profits by following the trend in the forex market. Trends are very helpful if you use the available tools that are necessary to study the market. A fundamental analyst has statistics and economic data to analyze the trend in the market; a technical analyst examines some indicators which are tailor-made to analyze the trends.

The moving average is a useful indicator/tool that almost all the technical analyst use for forex trading. This tool calculates the present average price by adding up the closing price of a predefined period (like ten days, two hundred hours, five minutes, fifty days, etc.) and dividing it by the moving average period. This is an excellent indication of the average value around which the price fluctuates. This is unlike an ordinary numerical average as the price in the moving average is being updated constantly, but at a slower pace.

There are two types of moving average:

  • Simple Moving Average (SMA)
  • Exponential Moving Average

We have already discussed the SMA in the above paragraphs. An exponential moving average is little different as the indicator gives priority to the latest value which means it is much more sensitive to a price change. This is not a very useful indicator, but many traders prefer both to finalize the entry and exit points.

Bollinger Band – A Trusted Trend Indicator

An important trend indicator that almost all analysts use is the Bollinger Band. This indicator, in combination with the other indicators, is good at predicting the disruption in the range pattern. At the same time, it can provide you the most profitable entry and exit points. Even in the trending markets, consolidations and pauses in price activity do occur as no trend is linear. The Bollinger band predicts the breakdown of these types of trends and indicates where to open the position.

Although many other indicators are good at predicting the market trends, you can also design your indicator with a little practice and knowledge of market dynamics. There is a lot of value attached with the indicators especially when coupled with other indicator tools, but it works best when combined with circumspect money management strategies.

Chapter 16…..Forex Technical Analysis: Part 3……>>>

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