Posted by forex at 12:26 AM
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1. Open Forex charting software. Most Forex brokers provide their clients trading platforms that include advanced charting tools.
2. Plot the price chart of any Forex currency you wish to analyze.
3. Add two moving averages to the price chart. Choose any two periodicities for the averages. Try 20 and 50 period averages to start. The moving average is a simple and popular technical indicator often used in Forex trading. The indicator averages the past closing prices of a set number of price bars, and plots this as a point on the current bar. The points for each bar are then connected with a line.
4. Observe how the moving averages react to price changes in the Forex market. When the lines are positively sloped, the Forex currency might be trending up. When the 'fast' line (with the shorter duration) crosses below the 'slow' line, a change in market conditions might occur, signaling a price reversal.
5. Add the 'MACD' indicator to the same chart. This is one of the most common Forex indicators; it stands for 'moving average convergence divergence.' It displays the difference between two moving averages, typically the 12 and 26 periodicities. The MACD graph is placed below the price chart.
6. Notice how the MACD reacts to changes in market direction. Often the MACD shows a sequence of higher lows while the Forex currency is instead creating new lows. This is referred to as 'divergence,' and it is one of the most powerful insights that an indicator can provide. When the MACD diverges from price action, a reversal in price is often around the corner.
7. Study these indicators on many different Forex charts until you acquire an understanding of how they develop and change to reflect price action.
8. Watch these indicators in real time to see how they unfold while price action is moving. This is the most critical and challenging stage to understanding indicators.Looking at past charts might make an indicator seem easy to understand. But real-time development--of the MACD in particular--can cause many false signals to appear because of the rapid changes in price. Only experience can lead a trader to fully trust a Forex indicator.