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Using
Technical Analysis in Forex Trading
As one of
the major paradigms of forex analysis, it comes as no surprise
that countless forex traders like you use technical analysis
to justify their investment decisions. Technical analysis, as
the name implies, will have you getting down and dirty with
nitty-gritty details and trend reports. You have to be able
to handle the concepts of technical analysis and use them to
maximize your investments. The most basic ones are below.
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Parabolic
SAR, Please
Trends are
an important part of trading in forex. That turning point in
a trend is the critical position that you should be able to
catch as a forex trader. The lowest points represent the best
times to buy while the highest points are the best times for
you to sell. That’s why it’s an important skill for
any forex trader to be able to determine when that turning point
occurs.
Parabolic
Stop and Reversal (SAR) helps you do just that. It’s a
technical analysis tool that helps you find certain indicators
to find out when those turning points are coming up. Using Parabolic
SAR is fairly straightforward and even somewhat similar to using
another technique, the Bollinger Bands. You’ll want to
use a computer program to do the plotting for you when using
Parabolic SAR.
Once the
data for Parabolic SAR has been plotted, you’ll see many
bars of varying length that seem to be in an upward trend. Those
bars will be your indicators; the positions of the dots with
respect to those bars will determine the best course of action.
If the dots are above the bars, it’s a good time to sell
because the prices just went sharply up. If the dots are below
the bars, on the other hand, it means that you’d better
sell.
Betting
with Bollinger
Using Bollinger
bands is another very popular way for you to take stock of the
market situation. Formulated by John Bollinger in the 1980’s,
Bollinger bands simply tell you when the prices are relatively
low or relatively high. Since there’s no universally ‘low’
price anyway, using Bollinger bands gives you the next best
thing by identifying when a certain commodity is in trouble
and thus much cheaper to buy.
With Bollinger
bands, you have a moving average that’s accompanied by
two lines – one above and one below it. It’s more
favorable to buy when the line above the average dips, or when
the lines above and below the average begin moving towards each
other. Such occasions would mean that the prices are dropping,
or at least moving towards the range of the low prices.
If your
strategy is to make heavy use of technical analysis, be sure
that you have a good grasp of several technical analysis concepts
to help you get through. There are many different methods out
there, each one with its own set of considerations. Prepare
for as many considerations and situations as possible, and it
won’t be long before you start seeing profits.
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