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Forex Technical Analysts believe that all the
financial markets move by trends. They are of the opinion that Forex trading
market is not that unpredictable as it seems to some. If the past movements
and price trends of the market are thoroughly studied, then according to the
technical analysts, current as well as future movements of the market prices
can be easily estimated.
And for sighting these past trends and movements and representing them
clearly and orderly, Technical indicators are used. These indicators are
basically figures and data of past market records based on diverse
statistical calculations. These indicators facilitate the traders using
technical analysis, to predict if there are any continuations or turnarounds
in the market trends.
There are many different types of technical indicators which are used in
technical analysis, a few of which are given below:
Trend indicators
The continuances or reversals of a price movement in any particular
direction over a period of time can be defined as a Trend or a Pattern. It
is believed by the technical analysts that trends seem to move in three
directions, either up, or down or sideways.
Trend indicators are used to even out inconsistent price records and stats
to produce a combination of market trends. They also reflect the direction
and the momentum of the current trend. The most common Trend indicator is
Moving Averages.
Flux indicators
Flux or volatility indicators are used to reflect the degree, or magnitude,
of everyday rate variations with or without describing its direction. These
indicators are important as it is seen that variations in volatility can be
liable to show traders a way to price changes. The most common Flux
indicator is Bollinger Bands.
Support / resistance indicators
Support and resistance indicators are used to reflect orderly, the effect of
the basic process of demand and supply on the price levels due to which the
markets ascend or descend time and again. The most common Support /
resistance indicator is Trend Lines
Oscillators/ Momentum indicators
Oscillators/ Momentum indicators are used to reflect systematically, the
momentum at which rates or prices move about in a specified period of time.
They help the analysts in establishing the advantage or disadvantage of a
trend or pattern as it develops over a time period.
It is believed that strength of a trend or a pattern is maximum at the
initiation of a trend and minimum at crossroads or transition phase of a
trend. The most common Oscillators/ Momentum indicators are RSI, Stochastic
and MACD.
Sequence indicators
Sequence indicators are those which are used to signify recurring trends in
any market movements, related to repeated patterns or events such as
specific time of the year, wars, elections etc.
Due to such events and happenings, many financial markets have a trend of
moving in cyclic patterns. The most common Sequence indicator is Elliott
Wave.
Strength indicators
These indicators are used to reflect market strength and the power of market
opinions relating to an outlay by studying the market situations obtained by
different market traders and investors.
Being the fundamental elements of this indicator, Volume or open interest
generate signs that are immediate or driving the market. The most common
Strength indicator is Volume.
These days, nearly all charting packages contain some of the above mentioned
technical indicators. Traders while choosing a charting package can easily
add their preferred technical indicators to their charts.
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