Technical Analysis Indicators

By now you’ve become accustomed to the forex markets. You understand how they work, why they work, and basic methods for evaluating the markets for successful trades. Now we’re going to explore technical analysis to its fullest with indicators that forex traders use to make sense of the markets.

These indicators each serve a purpose:

• Entry and exits – One of the most important parts of a good indicator is that it tells traders when it’s a good time to buy, and a good time to sell.
• Volatility – We haven’t talked about volatility in the markets yet, but volatility is how wild a market is. Think of volatility like riding a mechanical bull—it can move slowly up and down, or it can be very fast in moving up and down. Knowing when the big moves are coming helps us to hold onto the bull!
• Momentum – Momentum is the strength of a movement, and the strength in the continuity of a movement. When a trade has momentum, it cannot be stopped by traders taking the opposite side. Some indicators help us see the momentum building, and see where it might come to an end.

This section could be hundreds of pages long—technical analysts have made the field of study so unnecessarily complicated that whole reference books have been written on decades worth of indicators. However, we take a different approach; we want trading to be simple.

So in the next several pages of this chapter we’re going to highlight only the most commonly used indicators and explain how they can be used to guide our trades in the foreign exchange market. If you have an interest in seeking out some of the more obscure indicators, then we have a special section on those, too. However, as it stands, the indicators in this lesson can be applied practically to give traders just as good of a view as any of the more complex indicators.

Let’s start off with an indicator with a name that you’re already (somewhat) familiar with—the Moving Average Convergence Divergence. Proceed to the next lesson to see what it’s all about!