Technical indicators are statistics of past market data base on
different mathematical calculations. Traders use technical indicators
extensively in technical analysis to predict the continuance and the
reversals in currency trends.
There are two major types of technical indicators: trend following indicators and oscillators.
Trend following indicators reflect the direction and the
strength of the current trend. Traders may enter a position when the
trend following indicators showing the current trend is in a strong
momentum. The most common trend following indicators are: moving
averages and bollinger bands.
Oscillators are indicators banded between two extreme values
that reflect short-term overbought or oversold conditions. In general,
as the value of the oscillator approaches the upper extreme, the
currency is said to be in an overbought condition, and as it approaches
the lower extreme, the currency is consider to be oversold. Traders may
exit a long-trade when the oscillators showing the current price is in
an overbought condition, or they can exit a short-trade when the
oscillators approach the lower extreme. The most common oscillators are:
Relative Strength Index (RSI), Moving Average Concergence Difference
(MACD) and Stochastic.
Nowadays, most charting packages include the above common technical
indicators. Traders can find a charting package and add their favorite
indicators to their charts. Traders tend to use a mix of trend following
indicators and oscillators. They usually pick one from each category as
the main reference. Most of the forex charting packages offer real-time
streaming pricing. At the same time, all the calculations of the
indicators are done automatically and instantaneously.
The following articles will introduce the common indicators mentioned
above. Readers can choose their preferred indicators after knowing each
of their mechanisms.
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