Trading can be complex, it is our mission to simplify it as much as possible while providing top notch education to complement your Forex Trading Strategy. If you are just beginning your journey into the Forex, you may not know much about technical indicators; or as we call them, “studies”. This article is a brief intro into 5 commonly used technical indicators (studies). If you think we missed one feel free to Tweet Us @PremiereTrade and let us know!
1. Moving Average Convergence Divergence (MACD)
This momentum indicator shows the relationship between two moving average prices. It is calculated by subtracting the 26-day exponential moving average from the 12-day exponential moving average. The three common methods used to interpret the MACD are: Crossovers, Divergence, and Dramatic Rise. A move above or below the zero line signals the position of the short-term average relative to the long-term average. To add the MACD into your PremiereTrade Software, simply right-click on the charting screen or Wizard screen and select “Add Study”, then MACD.
For more information on the MACD click here.
2. Bollinger Bands
This technical analysis technique consists of a centerline (PINK line above) and two price channel bands (BLUE lines) above and below it. The centerline shown is called an exponential moving average, and the channels shown are the standard deviations of the currency pairs that are being studied. Bollinger bands adjust themselves to the market, so if the market becomes more volatile, the bands will widen and move away from the average. For more on the Bollinger Bands click here.
3. Stochastics
This technical momentum indicator compares a security’s closing price in a market to the high and low prices in that market over a given time period try this out. The oscillator’s sensitivity to market movements can be reduced by adjusting the time period or by taking a moving average of the result. The indicator is calculated using the formula:
%K = 100[(C – L14)/(H14 – L14)] (Represented above by the BLUE line)
C = the most recent closing price
L14 = the low of the 14 previous trading sessions
H14 = the highest price traded during the same 14-day period.
%D = 3-period moving average of %K (Represented above by the RED line)
For more on the Stochastic Oscillator click here.
4. Moving Average
This indicator in technical analysis helps smooth out price action by filtering the “noise” from other price fluctuations. Since it is based on past prices, it is also known as a trend- following or lagging indicator. There are two common moving averages: The simple moving average (SMA) and the exponential moving average (EMA). The main use o the moving average is to identify the trend direction, and to determine the support and resistance levels. For more on the Moving Average click here.
5. Relative Strength Index (RSI)
This price oscillator is used in technical analysis to show the changes in the strength of the prices. It compares the magnitude of recent gains to recent losses to try to determine overbought and oversold conditions of an asset. The RSI is calculated with the following equation:
RSI = 100 – 100/(1 + RS*)
RS = Average of x days’ up closes / Average of x days’ down closes
An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued. For more on the RSI click here.
(Source: Investopedia)
Trading can be complex, it is our mission to simplify it as much as possible while providing top notch education to complement your Forex Trading Strategy.