Forex indicators (Part 3)

<<< Forex indicators - Part 2

Again, charts for different timeframes will show different moving average values (and trends). For example: a daily chart may show a strong uptrend, whilst a shorter timeframe may show a downtrend or a ranging market. The trend on the trading chart timeframe is the important factor.

The cross-over points of two different moving averages can be a valuable trading tool. For example: combine a ten-period (fast) and a 20-period (slow) moving average on a chart. In theory, when the fast moving average crosses up through the slow one, it is a buy signal; conversely, when the fast crosses down through the slow it is a sell signal.

The predictive window (and usefulness) of moving averages is directly related to their timeframe; very short timeframes have a very short predictive value; conversely for longer timeframes.

As always, only use any indicator in conjunction with others and always use the price as the final guide. No indicator is perfect or 100% reliable – especially with short timeframes.

Support & Resistance Indicators (Line Studies):

Support and resistance lines are effectively part of trend identification, but in this case, the market may be ranging – narrowly or widely – between certain price values. A line drawn through common upper prices is known as a “resistance” line, and the line through common lower prices is known as a “support” line.

The importance of support and resistance lines is that:
• They identify upper and lower boundaries between which the price may range or “bounce” backwards and forwards. This feature allows traders to set stops just outside these values with some confidence,
• They can signal the start of significant trends when prices break through either line. These are called “breakouts” and the strength of the break through the line is important to note for potential signals.

Volatility Indicators:

Volatility describes the day-to-day movement in prices (up or down). The theory is that a change in volatility tends to lead to a change in price.

For example: Bollinger Bands are volatility indicators and if the price touches or penetrates either band, it could indicate a price reversal. The distance (or gap) between the upper and lower bands indicates the volatility level – the wider the gap, the higher the volatility.

Other Indicators:

Shares and commodities may use other indicators to measure Market Strength and Market Cycles. Market Strength indicators use volume and open interest – which are not available for FX markets. Cycles are sometimes evident in the futures markets, but are not generally used with FX.

Tables of Indicators: (NOTE, this is NOT a list of recommendations, it is for information only)

NOTE 1. The tables below contain the names of indicators copied from the MetaStock User Manual and the GFT FX Trading Platform “DealBook 360”.

NOTE 2. The reason for creating these tables is to show some of the range of indicators available to the trader. Obviously, other trading platforms will have some or all of these indicators available, and probably many more. It is up to the individual traders to research and select the indicators they assess to be the most suitable for their trading system and rules.

NOTE 3. Any indicator listed in the tables may have a variety of names. It is the sole responsibility of the individual using the tables to ascertain the correct name of any indicator and its relative merits for their trading system.

NOTE 4. This is NOT a fully comprehensive or exhaustive list, nor is it a recommendation for any particular indicator, analytical tool, or trading platform.

http://forex-strategies-revealed.com/
Copyright © Forex Strategies Revealed