LEARN TECHNICAL ANALYSIS
Part 2 - Technical Indicators
"Technical analysis is about price. Where price has been. What price has done. Where price could go in future.
This FREE online course will teach you everything you need to know about Technical Analysis"
An Introduction to Technical Analysis
What is technical analysis?
Technical analysis is the analysis of price.
To analyse the price, you need a price chart. These charts show the historical movement, highs, lows, and price direction.
Technical analysis is split into two primary forms of analysis; price action and technical indicators. On this website, both are covered for free.
Price Action Explained
Price action is the analysis of historical price behaviour, i.e., how price has acted in the past.
A trader using price action will consider many things...
1. Where price has been
2. Which direction price is moving
3. The highs in price
4. The lows in price
A trader using price action will analyse market trends, consolidations, and patterns.
It's simpler than it sounds. I have a free course that teaches all about price action. If you've joined my website on this page, you have missed a lot of important free online content. I suggest you take my Forex price action course here. Alternatively, return to the beginning to learn how to become a trader.
Technical Indicators Explained
Technical indicators use mathematical calculations based on price.
This course explains technical indicators in simple terms.
Indicators use a variety of formulas to analyse prices. Each technical indicator analyses price differently, so each indicator looks different. Every indicator shows distinctive things.
All price indicators have something in common, though. They are trying to help traders know where future prices could be. If you know the future price, you can make a profitable trade. This is the purpose of Forex trading - to make a profit from the market.
Technical indicators are categorised into; moving averages, oscillators, and overlays.
The video below will teach you the basics of technical indicators. I will then guide you through the different types of indicators and how to use them.
Technical Analysis - Moving Averages Explained
I am not going to bore and overwhelm you with complicated formulas. I will not show you how an indicator uses price data in its calculations. These things are not necessary.
I will teach you how to use technical indicators to trade Forex. I will teach you how to use indicators as part of technical analysis. This is what is important when trading Forex.
The first thing to mention is that technical indicators are not trading signals. They do not guarantee anything. No one indicator is better than another. There is no holy grail indicator that shows you when to buy and when to sell.
Indicators are not used by themselves to make trading decisions. That is not the purpose of trading indicators. Instead, indicators are used as part of analysis. A combination of price action, technical indicators, and fundamental analysis is the key to successful trading. All three are covered on this website for free. There will also be a free technical analysis PDF at the end of the course!
Moving Averages Explained
As the name suggests, moving averages are averages that move. They average prices and plot the norm on price charts.
They often show as a wavy line on the price charts. They can be any colour. The colour is not important.
Moving averages are used in three primary ways; price direction, price reversal, and dynamic support and resistance. All three are covered in this free online course.
Moving averages used are for price direction.
As this indicator calculates and plots price averages, the indicator can show the general direction the price is heading. If a currency pair is up-trending, the average will likely increase. Another way to describe this is the moving average is bullish.
The same can happen with a downtrend. The moving average will likely decrease/be bearish.
Don't worry. There will be examples of using moving averages for price direction in the coming video of this online course.
Moving averages can also suggest when a market is reversing, i.e., when an uptrend is becoming a downtrend or when a downtrend is becoming an uptrend.
They do this by a moving average crossover.
A moving average cross is when two moving averages cross each other. When this happens, the moving averages indicate that the price direction could change.
There will be examples of moving average crosses in the video below.
Dynamic Support and Resistance
Moving averages can also act as support and resistance.
Moving averages can provide support and resistance to the market, like horizontal and diagonal support and resistance.
When a moving average is below the price, this can give price support. When a moving average is above the price, this can provide price resistance.
There are examples of dynamic support and resistance in the upcoming video.
Common Moving Average Settings
A moving average has a setting. This is sometimes called an input or period.
This period is the number of candles the moving average uses to calculate the price average. A setting of 50 will use the closing price of the last 50 candles. A setting of 5 will use the closing price of the previous 5 candles.
The most popular moving average periods are 50, 100, and 200. These are the moving averages you should use.
You can also choose different types of moving averages. The most common are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA).
I use the 50 SMA and the 100 SMA.
Wow! That was a lot of information! Are you okay? Watch the video below. It will explain things more clearly.
After watching the video, try moving averages yourself. Price charts are free at TradingView and include all the technical indicators on this page. Alternatively, consider opening a free practice trading account with a Forex broker.
Technical Analysis - Oscillators Explained
Oscillators are another common trading indicator.
Oscillation is a back-and-forth or up-and-down movement in a regular rhythm. There are technical indicators that use oscillation. These indicators are called oscillators.
Oscillator indicators usually create a wave motion within a range. Think of a lie detector test - the paper with the needle moves back and forth. Or an ECG machine that monitors a heartbeat. Both of these examples show data in an oscillation.
Most oscillator trading indicators signal price reversal, momentum, and direction.
Common Oscillator Indicators
There are many different types of oscillator indicators, just like many moving averages.
Each oscillator has its settings. Once again, just like moving averages.
Let's keep things simple to avoid bombarding you with too much information. Below are the most popular oscillator indicators, their standard settings, and how to use them to trade Forex.
The Relative Strength Index (The RSI)
The RSI is a momentum and exhaustion indicator.
The RSI aims to show whether the momentum is up or down. It also signals if a market could be too bought or too sold. Let me explain things further.
The indicator oscillates between a range of 0 and 100. If the indicator is nearing 100, the current price is overbought. This suggests that a bearish move could be due. If the indicator is nearing 0, the current price is oversold. This indicates that a bullish move could be due.
The RSI can also be used to indicate the current momentum. An RSI above 50 signals bullish momentum. An RSI below 50 signals bearish momentum.
The most common setting for an RSI is 14 at close. Most RSIs come with this setting as standard.
The Moving Average Convergence Divergence (The MACD)
The MACD is another momentum indicator.
It looks similar to a moving average crossover.
When the MACD crosses, it can signal an acceleration - either bullish or bearish.
Don't worry. There will be examples of using the MACD in the video below. There will also be examples of using the RSI.
The Stochastic can be used in a variety of ways. One of the most popular ways is Divergence.
Divergence is the difference between the highs and lows of price action and the stochastic indicator. When this happens, the indicator signals a potential trend reversal.
As always, there are examples in the following video.
Technical Analysis - Overlays Explained
Overlay indicators are technical indicators that are not categorised as moving averages or oscillators. They vary greatly. There are many of them.
The last part of this free technical analysis course will cover the most common indicator overlays; Bollinger Bands, Ichimoku Kinko Hyo, and Parabolic SAR...
Which are the best indicators to use when trading Forex?
Haha! This is a commonly asked question by newer traders.
No indicator statistically beats all the rest. There is also no holy grail - an indicator that is 100% reliable.
To answer the question. Use the indicator(s) that appeal to you the most. Whichever makes the most sense.
Successful trading is about combining indicators with other forms of analysis, such as price action and economic data. The best traders use a combination of technical analysis and fundamental analysis. Technical indicators should never be used by themselves. If you trade Forex using indicators only, you will fail.