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The Ultimate Technical Indicator!

Download this Forex Secret Indicator just now! Discover Forex Brilliance and Steal Pips and download the powerful Trend Dash Board and the Trend Explosion System FREE! What is the best technical indicator to use in forex trading? Is it the Stochastic, the Average Directional Index (ADX), the Relative Strength Index (RSI), the Exponential Moving Averages (EMA) or the Bollinger Bands? Every day, a new technical indicator is hitting the market as technicians attempt to find the ultimate technical indicator. There are so many indicators available now!

So what is the Ultimate Technical Indicator? Well, to tell you the truth, there is one indicator that will always stand above the rest. And that indicator is the price action. You see all these technical indicators are formulas that are applied to the price action to get a trading signal.

Now in forex trading, we do not have the price in the real sense, we only have the exchange rate between the two currencies. This exchange rate is the relative price of one currency to another. For those who have been trading stocks before starting forex trading, this might be somewhat confusing in the beginning.

Now support is the price where buyers step in and start buying en masse. Think of the support as the floor. When you hit a rubber ball on the floor, it bounces back and returns to you. The price action bounces back from the support in the same way.

Resistance is the price where sellers start selling as a crowd. Think of resistance as the ceiling above you. When you throw a ball above, it hits the ceiling and returns. In the same way, when the price action hits the resistance, it bounces down.

You need to understand this that large players like the big banks, hedge funds and the institutional investors trade in a totally different manner as compared to us the small traders. As a small trader, we want to enter and exit all at once since our order size is too small.

But when a hedge fund or a large bank enters the trade, they usually have large order size. They don’t want to move the market and drive the price by too much buying or selling. So they enter the market gradually. In case of a large buyer, it might drive the price high. So instead of placing one single large order, these big players, enter the market gradually.

When the price reaches the support or the desired entry level of these big banks or hedge funds, they enter the buy order. Similarly in case of a large seller, a single order might drive the price still lower. So a large seller will always enter the market gradually. This way, you see the price bouncing back and forth between support and resistance.

Bollinger Bands Secrets That You Should Know!

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Bollinger bands may be applied to any market or security. Any timeframes from daily, weekly, monthly to intraday can be used. Primary advantage of using these bands is to check if the prices are relatively low or high

Bands will be narrow when the volatility in the market is low. These bands expand when the volatility in the market increases. This information can be especially useful to options traders as options prices are heavily influenced by the swings in volatility.

When prices move above the upper band this is a sign of great strength and when they move below the lower band, a sign of great weakness. When prices move outside the bands, trend continuation is often a valid assumption.

Rapid and substantial price moves often tend to happen after the band tightens. Bollinger bands are often used in conjunction with other technical indicators to detect high probability trend reversal or turning points. The primary indicator that works best with these bands is the RSI (Relative Strength Index), MACD or the CCI ( Commodity Channel Index).

The bands that are plotted above and below this moving average are the moving standard deviations. These bands vary in distance from the average as a function of market volatility. Two standard deviations above and below the average is the recommended settings for these bands.

However, if the number of periods in the moving average is increased to 50 for longer term trends, the recommended setting for the bands should be increased to two and half standard deviations. Similarly, if the moving average period is lowered to 10, the standard deviation should be decreased to one and a half.

For the stock market as well as individual stocks, 20 period moving averages are the best. However, the average that is selected should be descriptive of the timeframe chosen. Trading bands is one of the most powerful concept available to a trader.

However, when prices touch these bands, it should never be taken as an absolute signal. It should only be taken on a relative basis and the price action needs to be confirmed with other technical indicators before trading on these signals.

5 Technical Indicators That You Should Know!

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The truth about indicators is that they can only analyze historical data. Their effectiveness is therefore limited and sometimes very misleading. What you need to learn is the master a few technical indicators in such a way that you know their strengths and weaknesses in depth. What this means is that you can interpret the trading signals and by looking at the market, know whether the trading signal generated by the technical indicator is relevant or not. We can divide technical indicators into the following broad categories:

Average Based Technical Indicators: These are the most popular technical indicators among the traders and include the different moving averages. The number of data points used in calculating the average is based on the time frame. The problem with this indicator is that it is a trailing indicator. It cannot anticipate. It can only report on the historical moves. Since an average based indicator is only a trailing indicator, it should always be used with caution.

Fibonacci Based Technical Indicators: Fibonacci based Technical Indicators are truly leading indicators and can effectively anticipate future price movements. Experienced traders heavily depend on these indicators as it helps them to anticipate other trader’s intentions. Market are overbought or oversold due to humans trying to trade their emotions. However, most traders use Fibonacci indicators as tools in conjunction with other indicators.

Trend Based Indicators: You can draw a simple trend line by connecting the high highs or the low lows. This is one form of a simple technical indicator. However, constructing a trend wall can be a much superior indicator as compared to the trend lines.

ABCD Parallelogram Indicators: These indicators are closely connected with the Fibonacci Indicators. It is based on the concept that every surge will be followed by a retracement of the same level.

Divergence Indicators; Divergence indicators like the MACD ( Moving Average Convergence Divergence) Indicator are highly popular with the traders.

Learning technical analysis and mastering these technical indicators are must for you if you want the edge that can make you a winning trader! Without learning technical analysis, you should forget about trading!

MACD Divergence Explained

Understand the forex market. Understanding how to interpret a MACD divergence can be very helpful for you in trading. Do you know what does a MACD Divergence means? Just that the current price trend is running out of steam. It soon may reverse direction. However, price reversal may not happen right away. But a MACD Divergence is a powerful hint. The market is changing direction. It is easy to spot MACD crossovers and dramatic rises. Not so a MACD divergence. Spotting a MACD divergence will only come after practice.Get good forex training.

For example, if the price is making a series of higher highs and MACD is making a series of lower lows, something is wrong between the two. What you are looking for is when the price action and MACD do not agree. Free forex signals for you.

Most probably the traders are getting nervous. They are slowly fading out of their trades. No one is trading against the trend and yet fewer and fewer traders are in the trend. MACD divergence is seen as a sign that fewer and fewer traders are in the trend.

The only traders in the trend are nervous and jittery. They want to exit. Most of them are likely to exit their trade at the first sign of trouble. As soon as the bears muster up enough guts to short. MACD is diverging from the bullish trend. The bulls will exit and the bears will take over.

There are two powerful keys in locating times when MACD divergence is likely to represent a reversal in price. This is exactly why MACD is so powerful. It takes time to setup but when it works, it often works well.

When the price is at the double tops or double bottoms, MACD divergence can be powerful. At this point you spot MACD divergence. You are making your trading plan based on the reversal or breakout of the support and resistance (S&R). This is known as Exhaustion Pullback.

You should trade based on rejection reversal. What does this means? This means that the price action is running out of steam. This indicates that there are not enough committed traders to break the support and resistance (S&R). The price will reverse direction.

MACD is also used as an overbought/ oversold indicator or oscillator. Suppose you see that it has reached its overbought/ oversold range. The price action is turning normal. This is a signal that you should avoid trading at this time.

Don’t get confused and think that the currency pair is overbought and everyone is buying. When the price action reaches its extreme, you will see price exhaust and the MACD line drop back into normal zone. Don’t confuse the overbought/ oversold MACD zones as trade opportunities. Avoid trading at this time.

It is also important to note that divergence can not only be found on the MACD line and the signal line, it can also be found on the histogram. These two situations along with your other technical indicators can provide excellent trading opportunities.

What Is Moving Average Convergence Divergence (MACD)?

Understand the forex market.Moving Average Convergence Divergence, acronym MACD and pronounced Mac Dee is one of the simple and most reliable technical tools in your trading arsenal as a currency trader. MACD is a trend following momentum oscillator or indicator and is used often by most of the traders.

MACD is a lagging indicators and it shows the relationship between two moving averages of recent prices. Most technical indicators used in technical analysis are lagging. This means they are slow and they just tell you after the fact what just happened. Learn forex news trading.

Technical analysis is based on the belief that past prices can be used to predict the future prices in the currency markets. Learning technical analysis is essential for you as a currency trader.Discover trend forex system.

There are many chart types used in the technical analysis. Technical analysis helps you to read your charts and analyze them with a number of technical indicators. Using technical indicators is the key to understanding the market behavior.

MACD is calculated by subtracting a slow exponential moving average (EMA) like 55 from a fast exponential moving average like 21. Signal line is calculated by the taking the EMA of MACD for a number of bars like 8. The Histogram is the difference between the MACD and its signal line. 55 and 21 are the number of periods that you use.

MACD is one of the most popular indicators used in currency trading. However, beware that MACD is often misunderstood and misused. Like any other technical indicator you should use it in conjunction with other technical indicators.

Crossovers: When MACD falls below the signal line from above, it is a bearish signal. It indicates the time to sell. Conversely, when MACD rises above the signal line from below, it is a bullish signal. It indicates that you should buy.

Divergence: When the price diverges from MACD, it indicates the end of the current trend. Negative Divergence is when the price action is rising and MACD is falling. Both the price action line and the MACD line are diverging. It is an indication of the change in the currency trend. That’s right! The lagging indicator that is supposed to follow the price is predicting future behavior of the prices in the market.

Dramatic Expansion: Dramatic expansion occurs when the shorter moving exponential average pulls away from the longer moving exponential average. Suppose MACD expands dramatically. It is an indication that the currency is overbought/ oversold and may return to normal soon.

You should make one thing very clear when you use a MACD. All the above three cases are important. They should not be overlooked by you as a currency trader. However, none of them alone are signals for entering or exiting a trade. MACD Divergence is tradable when confirmed by other indicators. If you simply start trading on MACD Divergence, it may not yield a profitable trade.

However, when confirmed by other technical indicators, success is more likely. This is because of the fact that several things are happening at the same time. Each is attracting the same bulls and bears into the trade that you are planning to make. So you have to confirm your finding with other technical indicators.

When you use MACD, crossovers and dramatic rises are usually easy to spot. Even novices can do that. However, spotting MACD divergence correctly comes after a little practice.