Some other Technical Indicators

In the last post we mentioned that in Forex trading the Moving Average convergence/divergence indicator (MACD) was often used in conjunction with the Relative Strength Index.

The Relative Strength Index (RSI) compares recent gains with recent losses to detect whether the market is overbought or oversold. The higher the number – i.e. 70 or more on a scale of
1-100 – the more overbought the market is, and the lower the number – 30 or less on a scale of 1-100 – the more oversold it is. The RSI is what is called a “leading” indicator – that is, it enables you to see what the market is about to do, and act accordingly.

Another very important technical indicator is Bollinger Bands. These are plots on a graph, plotted two standard deviations above and below a simple moving average. The principle is that the spacing between them varies according to the volatility of the market. So when the markets become more volatile, the distance between the bands widens, and when they become less volatile, the spacing narrows. The closer prices move to the upper band, the more overbought the market is – indicating “sell” – and the closer they move to the lower band, the more oversold the market is, indicating a “buy” signal.

As we mentioned last time, if you register with Easy-Forex they will teach you all you need to know about using these technical indicators. You really do need to know how to use them in order to make buying/selling decisions. And make sure you keep checking
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