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Articles

Fx Day Trading Technical Indicators

Technical and fundamental analysis are the basic tools used to analyze forex markets when making trading decisions. Both have extremely important aspects and new investors should take the time to learn and understand market forces before attempting to trade directly.

There are numerous technical indicators and few of them are dedicated for forex day trading. These technical indicators focus on the price action and volume to forecast future price direction for an intraday trading decision.

Analytic studies and technical indicators based on mathematical formulas are used to analyze historical pricing data to predict future price direction.

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Bollinger Bands is one technical indicator that can be used by a forex day trader. It is a trading envelope consisting of two indicators plotted at an interval above and below a moving average indicator.

The upper band is two standard deviations added to the moving average and the lower band is two subtracted from the moving average. Bollinger Bands allow traders to compare the volatility and relative prices levels over a period of time.

The bands widen as volatility increases and narrow as volatility decreases. Though this takes longer time frame into consideration, a forex day trader can combine this with other technical indicators for day-to-day trading.

The Moving Average Convergence/Divergence study (MACD) is one of the most simple and reliable technical indicators. It uses moving averages to construct an oscillator.

When the oscillator crosses above the slower moving average, it is an indication for buying and when the oscillator crosses below the slower moving average, it indicates selling. Divergence can be indicated with the MACD also. This technical indicator can be used for longer-term predictions as well.

Moving averages are one of the most popular technical indicators used by forex day traders as it works as building blocks for other technical indicators.

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A Simple Moving Average (SMA) calculates the average price over a number of periods. An Exponential Moving Average (EMA) influences the most recent prices in computing the average and therefore closer to the actual price.

There are few technical indicators, for example, Absolute Breadth Index, which will not be suitable for a forex day trader, because of its inherent considerations and parameters.

Few technical indicators can be applied partially by the FX day traders only after making necessary amendments. It must be remembered that day trading, because of the short time scale, makes use of more than one indicator with making permutations and combinations.

Many automated trading platforms develop their own technical indicator based on one or more such technical indicators that are targeted for FX day traders.

Chart based technical indicators like Bar Charts, Candlestick Charts, or Line Charts work efficiently for forex day traders. A system using such indicators will therefore churn out the maximum profit for the traders.

Reading and understanding these technical indicators are equally important for a successful day trading.

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