The (Foreign Exchange) Forex Trading Market Explained.
 

Defining Moments Regarding
Trading Trends and Ranges with Forex

One of the ways forex traders determine when to buy or sell is by a method known as technical analysis.  While some traders use a method called fundamental analysis, which employs factors such as politics, current events, and the state of world economies, technical analysts are concerned solely with prices past and present.  By using formulas and calculating various lines and indicators, these traders are able to project into the future and make an educated guess as to what the price of a given currency will do.  And nearly all of these indicators have certain defining moments that tell one when to act.

With the Moving Average Convergence / Divergence (MACD), a technical analyst plots on a price chart two lines representing closing price moving averages of different lengths, typically 12 and 26 days.  The MACD line is plotted using the difference between these two moving averages, and a second line called a “signal” is formed by taking a nine day moving average of the MACD line.  It is the interaction between these two lines that create triggers telling the trader when to act, and one of these defining moments comes when the lines cross, as it indicates that there will likely be a change in trend.  When the MACD line crosses up through the signal line, this is the trigger to buy, and one should sell when the signal line crosses up through the MACD line. 

Another tool that technical analysts use to determine when to buy or sell is the Relative Strength Index (RSI), which indicates price strength.  Fairly easy to calculate, this indicator measures the ratio of up days to down days in a currency.  Since the forex market is open 24 hours, most analysts use the price as it was at the close of the New York Stock Exchange for that day.  To arrive at the RSI, one measures the amount of change up or down each day, and then calculates one exponential moving average each, typically of 14 days, of the up numbers and down numbers.  A fraction is formed by using the up moving average as the numerator and the down moving average as the denominator.  This fraction is then represented as a number from 1 to 100.  Essentially, a high RSI indicates the currency has been bought more than sold lately, and vice-versa.  One defining moment in the RSI line comes when it reaches 70, which is the number that most analysts feel represents an overbought currency and one that should be sold.  Likewise, an RSI of 30 or below indicates a currency that is ripe to buy, as it is oversold. 

On a more long-term scale, a Coppock Curve is a tool often used by technical analysts to determine when a bear market has reached its low.  Designed to use on a monthly scale, this line is calculated by adding a 14 month rate of change with a 10 month rate of change, and smoothing it with a weighted moving average.  A signal to buy is generated when this number is below zero, and moves upward from a trough, as this represents the end of a long period of selling.  This tool is psychological in origin, as its creator likened bear markets to period of mourning.  Upon asking members of the Episcopal Church the length of time a typical person mourns, he received an answer of 11 to 14 months, so he used these numbers in his formula.

By following certain trends and acting when triggers are indicated, many technical analysts are finding success in the forex market.  These defining moments are times when it is best to act, whether the signal generated is to sell or buy.

 

 

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Introduction to Online Forex Trading
Current Forex Currency Rates
Forex Trading
How to Get Started In FOREX Trading
FOREX versus Futures Market
FOREX versus Stocks
FOREX Trading Philosophy
FOREX Tools
Fundamental Analysis In Forex Trading
Forex Technical Analysis - Part 1
Forex Technical Analysis - Part 2
FOREX Trading Strategies
Trading Currencies on Margin
Currency Option Marketplace
FOREX Signals
How to Read FOREX Quotes
Calculating FOREX Profits and Losses
Risks of FOREX Trading
FOREX Training
FOREX Trading Software
FOREX Brokers
FOREX Glossary
Forex Updates and Training
Crash Course in Forex Education
How to Recognize Patterns in Forex Trading Markets
Defining Exotic Currencies and Their Impact on Forex Markets
Defining Trading Trend and Ranges in Forex Trading
Mind Games – The Psychology of Forex Market Trading
Crossing Currency - What’s This Mean to Forex Traders
Money Management Basics for Forex Traders
Choosing Your Forex Broker
Expensive Beginner Forex Trader Mistakes
The Elliott Wave Theory for Forex Markets
Failsafe Facts to Guarantee Failure in Forex Trading
Five No Nonsense Strategies in Forex Trading
Global Expansion and It’s Reaches within the Forex Market
Hedging in the Forex Market
The Important Ways to Keep From Losing in the Forex Markets
An Overview of the Euro’s Performance in the Forex Markets
Six Trading Tips for the Forex Newbie
The Lowdown on Day Trading
Interpreting How Interest Rates Drive the Foreign Exchange Markets
The Basics of the Bollinger Band Technical Indicator in Forex Markets
Relative Strength Analysis in Forex Trading
The Basics on Understanding Forex Options
Forex Charts – What Are They and How Do You Read Them
Interpreting the Future of the Oil Marketplace and How It Affects Forex Trading
Top Five Economic Indicators that Drive Forex Trading
Rules for Trading in Forex Markets
How Does the Japanese Yen Stack Up Against the US Dollar in Forex Markets
Pivot Points in Forex
The Ins and Outs of Trying Out a Forex Demo Account
The Top Currencies to Watch in the Forex Trading Game
Defining Moments Regarding Trading Trends and Ranges with Forex
Top Ten Basic Terms in Forex Trading and Their Definitions
Forex Folklore Investment Myths in the Market
Five Economic Driving Forces that Influence Forex Trading
Day Trading All You Wish You Did Not Have to Know
Time line for Daily Forex Trading When are the Optimum Moments
Forex Relative Strength Analysis
How Forex Quotes Can Influence your Trading Tactics
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