More On Technical Indicators
June 2nd, 2009
Learn Forex Scalping.Moving Average Convergence Divergence (MACD) is the difference between the 26 day and 12 day exponential moving average. A 9 day exponential moving average called the signal or a trigger is plotted on top of MACD to show buy sell opportunities. Discover a Forex Trading System.
You can use MACD in three ways: Crossover, overbought/oversold conditions and divergences. In wide swinging markets, MACD proves most effective. When MACD falls below the signal line, the basic rule is to sell. Similarly, when MACD rises above the signal line and cuts it from below, it is a buy signal.
MACD is also very useful in telling whether the market is overbought or oversold. When the shorter moving average pulls away from the longer moving average, it is likely the price has overextended itself and it will comeback to the realistic levels.
An indication that an end to the current trend may occur soon is when MACD diverges from the currency pair. A bullish divergence occurs when the MACD is making new highs but the currency price fails to reach those highs. Similarly, a bearish divergence occurs when MACD is making new lows and the currency price fails to reach those lows.
Momentum is an oscillator that indicates the rate of price change. This oscillator is the net difference between the currency closing price and the oldest closing price from the predetermined period. The shorter the number of days included in the calculations, the more responsive the momentum oscillator will be to the short term price fluctuations. The signal is triggered when the oscillator crosses the zero line.
The Relative Strength Index (RSI) indicates a market’s current strength or weaknesses depending on where the prices close during a given period. RSI is plotted on a scale of 01-100. A buy signal is triggered when RSI moves up from the lower band usually set at 30. A sell signal is triggered when RSI moves down from the upper band and comes down below 70.
Rate of Change (ROC) is another version of momentum oscillator. It is sometimes used. The ROC formula divides the current closing price with the oldest closing price instead of subtracting the oldest closing price from the current closing price as in the momentum oscillator.
One of the most popular indictors is the Volume Indicator. It is used to show the strength of an up or down movement. A movement accompanied by an increasing volume is more likely to continue strongly than a movement accompanied with decreasing volume.
Many traders use volume indicator as their only tool in trading. Others use it in conjunction with charts, economic news and geopolitical news. The Volume Indicator is a great source of confirmation, entry and exit signals and overall trading decisions. Learn to use these technical indicators. Become comfortable in using them and discerning trends on different currency pairs and time intervals.
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