LET'S TRADE, LET'S BUILD OUR FUTURE! Forex Trading Tips Part 6

TECHNICAL ANALYSIS

Hello guys, how is your forex? Any progress? And are you interested in investing in other instruments? Well, I hope you have a good experience in forex trading. Challenge yourself, buddy!

So now, let's discuss about technical analysis! FYI, this analysis is often called as charting because we use chart in analyzing the price movement. On previous method, I explained you that Fundamental analysis was good for long term trading, While technical analysis is very good for short term trading (depends on the timeframe you use).

Based on Wikipedia, technical analysis is a security analysis discipline used for forecasting the direction of prices through the study of past market data, primarily price and volume. Analyzing technically means, you use several indicators then combine them. And what are the indicators? Below are some indicators I usually use:

1. Exponential Moving Average
Exponential Moving Average (EMA) is also known as Exponentially Weighted Moving Average (EWMA).
I set 2 EMAs for 10 and 20 respectively. This is how to read these 2 EMAs:

-If EMA 10 intersects EMA 20 undereneath, it indicates that the price will move up immediately. The conclusion is we must buy the pair.
-If EMA 10 intersects EMA 20 from above, it indicates that the price will sink. Therefore you should sell the pair to gain profit.

EMA works effectively for short term trading. Look at the picture below!

I draw a light blue circle for EMA 20 and I draw the brown one for EMA 10. As you can see, the EMA 10 intersects the 20 from beneath (4/ 19/ 2013, 7:15 AM) and the result is, the NZD/USD pair moves up which means NZD gets stronger against USD.

2. Bollinger Bands
This indicator was created by John Bollinger in 1980s. This indicator consists of two "bands", those are Upper and lower band. This is how to read Bollinger Bands:
- The price is high when it touches the upper band
- The price is low when it touches the lower band
- When the price breaks the upper band it means the pair is overbought, and it usually will go back in the bands. So, it's time to sell the pair.
- On the other hand, when the price breaks the lower band, the pair is oversold. So, it will be good if you buy the pair.
The point is, whenever the price breaks the bands, it will always go back to "get inside".
But, Bollinger Band is still inaccurate. You can see the picture below.

The circled lines are the bollinger bands (upper and lower). We know that the price will always go back to the inner band, but we still can't recognize the trend if we don't combine bollinger with other indicators.

3. Money Flow Index
According to a source, Money Flow Index (MFI) is an oscillator that uses both price and volume (of transaction) to measure buying and selling pressure. This indicator is created by Gene Quong and Avrum Soudack. MFI can be interpreted easily although it's not too accurate. Overbought happens when MFI >80. Conversely, Oversold happens when MFI <80. But, overbought doesn't always mean that the price will be going down straigth away and neither does oversold. The MFI will be shown in this picture:

You can see that the green line of MFI will move in line with the price's movement. Just move the cursor to the MFI line and the number will be shown whenever you point the cursor to line.

4. Momentum

It's quite easy to interpret Momentum. The price is in high performance when Momentum is above 0 or positive. Look at the picture above! The picture shows that GBP is going up against USD (April, 25th 2013) and when I point the cursor to the Momentum (yellow line), you can see that the number is 1.12. It means the pairs is moving so high! You'll get profit if you set a buy place for GBP/USD.

All we have to do is to combine them all to get the best conclusion whether to buy or sell. Remember, guys! Both fundamental and technical analysis are not 100% accurate. But I suggest you to keep up to date with the fundamental outlook. I hope you get what you want in forex trading.