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December 05, 2019
Success comes from knowledge; this applies to most things in life and especially in Forex trading. Finding the best forex broker is one step closer to you, as Salma Market's forex broker is here. The next step to be successful as a trader is to learn technical analysis. Technical indicators are a big part of technical analysis.
The problem is, at first glance, the name of a technical indicator can sound unpleasant, for example, MACD, RSI or Stochastic. However, you should not judge something from the outside. We will give a good and simple explanation of the most popular technical indicators. We guarantee that you will understand how to use it.
Technical indicators are divided into groups depending on the purpose. Because the purpose of indicators is different, traders need not just one, but a combination of several indicators to open a trade. There are, of course, a lot of technical indicators that you can choose based on your trading personality. In this article, we will discuss the 3 most popular technical indicators.
The advantages of using this technique are that you can identify the direction of a trend, find a trend reversal, as well as show potential support and resistance level. However, this technique also has a disadvantage, which is lagging behind the current price.
That means it will change slower than the price chart because the indicator is based on past prices. It's best to use a Simple Moving Average because most traders use this line. The most popular time periods for MAs are 200, 100, 50 and 20.
The MA period 200 can help analyze long-term "historical" trends, while the 20-period MA - follows the short-term trends. MA will not tell you which level to start trading on (for that you need other indicators). So, applying trend indicators should be one of the first steps of your technical analysis.
Bollinger Bands help measure market volatility, such as the level of variation in trade prices. The indicator is really good in the sideways market (when the currency pair is trading within a certain range). In this case, the indicator line can be used as a support and resistance level, where traders can open their positions.
However, during a strong trend, prices can spend a long time on one Bollinger line and not go in the opposite direction. So, we do not recommend Bollinger Bands for market trends. The closer the price is to the top band, the more overbought the currency pair is. In short, at this time the buyer has made money at a price increase and closed the trade to get profit/take profit.
The result is that the overbought pair stops rising and falling. Bollinger Bands work best in market trends. This indicator can be a good basis for a trading system, but that's not enough: you have to use other tools too.
MACD (Moving Average Convergence / Divergence) measures the driving force behind the market. This shows when the market is tired of moving in one direction and needs a break or correction. You can sell when the histogram bar starts decreasing after a big increase and buy when the histogram bar starts to grow after a large drop.
If you understand MACD, it will be easy for you to learn how other oscillators work: the principle is very similar. However, the indicator lags behind the price chart, so some signals come late and is not followed by strong market movements.
It's good to have a MACD on your graph because it measures trends and momentum. This can be a strong part of the trading system, although we do not recommend making trading decisions based solely on this indicator. Those are the most famous technical indicators according to the best forex broker.
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