Some old timers would say that the forex market is like the Russian roulette of a casino; a blind gamble to be precise. Yet even a wheel of fortune plays on something more than fortune-it has a meticulous logic to it. The same goes for the forex market-it has more moves than what meets the eye.
In a lay man’s terms, it comes down to how finely you can read between the lines, or spot a trend-to are precise. Many seasoned players and most of those on the big league vouch for the fact that the forex chart follows a visible pattern more often than not, and these patterns tend to repeat with time too. The traders who emerge cash rich at the end of a session are mostly those who can spot that pattern and its frequency, while the rest remain content with a few pennies.
Scientifically, you could term this process as technical analysis. It proves to be more of a guiding factor-and not a perfect assurance, as to how the market behaves. The tools technical analysis uses to analyze are called technical indicators. Using these indicators places no guarantee of a heaving bank balance at the end of the session, as the term states, it is merely an indicator. It is finally a calculated decision which depends on you, using these indicators in the way it would best suit you, which decides your fate at the end of the session.
Technical analysis uses all information available pertaining to a particular currency pair as well as its market influence. It uses two powerful indicators at its disposal-these are MACD (Moving Average Convergence Divergence) and RSI (Relative Strength Index).
The MACD indicator plots the difference between a 26 day as well as 12 day exponential moving average and the 9-day moving average being used as a trigger line, which points to the fact that a sell signal emanates if the MACD shoots up the trigger ; and a buy signal if the same plunges below the trigger line. This might seem a bit complicated to read but once you start trading and experiencing the process you will understand these forex technical concepts better!
The RSI is a measure of ongoing market activity and reflects the direction of movement of the same. The higher the value of the RSI, the more overbought the market is, whereas a lower RSI value indicates that the market is oversold.
Most of the forex technical analysis is quite difficult to understand for people who are new to the forex market. With simplified understanding of these technical tools you can possibly get the hang of the market and also make better decisions as a forex trader or forex broker.
