he forex industry is developing at a very high speed and the market becomes more and more competitive. To survive in the market, traders tend to discover the best possible way to maximize their profit. In the earlier stages, many people have focused on fundamental analysis, which is easier and more suitable for positional trading. However, with technological progress, financial actors can use lots of different tools in charts in order to benefit from both major and minor fluctuations in the market. Some traders still do not have knowledge of which technical analysis can thrive their portfolio. If you are also one of those and need a brief description of some of these indicators, you are in the right place.
- Moving Average Convergence Divergence
One of the most popular technical analysis tools, MACD is very useful to identify the direction and magnitude of a trend. In the simplest way, the price of a security has a tendency to enter a bullish period if MACD is positive. The situation is the opposite when the MACD is negative. It shows the prices may fall in a short period of time.
The signal line is as crucial as the MACD line. The position of the MACD line against a signal line determines the MACD value. If the MACD line goes below the signal line, taking a long position is more logical. On the other hand, the MACD line crossing above a signal line indicates that traders holding a short position will make a profit.
- Stochastic Oscillator
The stochastic oscillator compares the current price to the past price range over some specific number of periods. The idea of that indicator stems from the structure of a trend. When we see a trend being up, we expect to see new highs and the opposite when it is down. The stochastic questions the accuracy of that pattern.
It takes a value between 0 and 100. If the value is above 80, it means the security is overbought. When it is below 20, the asset is oversold and you can take a long position.
- Average Directional Index
The average directional index (ADX) is a trend indicator like MACD. By the definition, it demonstrates the consistency and strength of a trend. ADX line is the main line of the indicator and supported by two other lines: DI+ and DI-. When ADX is above 40, it means the trend is very strong. When ADX is below 20, the trend is considered weak. ADX being 20 and 40 is a completely different scenario, which the other two lines gain importance.
ADX above 20 and DI+ above DI-: Uptrend.
ADX above 20 and DI- above DI+: Downtrend.
Remember that there are lots of other technical analysis indicators such as RSI, Fibonacci lines, and so on. To mention all of them in one article is impossible and we have tried to focus on more forgotten ones. Do not forget to improve yourself and make huge profit with the power of knowledge.Share this article