Yesterday we explained how to trade with pullbacks in market trends. Today we are going to explain more about how to recognize and predict market trends. These are some of the techniques:
Moving averages Moving averages are used to emphasize the direction of a trend. A moving average indicates the average price at two given points in time, over a defined period of time intervals. So when the price falls below its moving average, it’s a signal to sell, and when it rises above its moving average, it’s a signal to buy. There are several kinds of moving average, including simple, weighted and exponential. The exponential moving average is the most often chosen as it takes into account both the most recent data, and the entire time period, and it is the one specifically used in the 5EMAS Forex System.
Moving averages Moving averages are used to emphasize the direction of a trend. A moving average indicates the average price at two given points in time, over a defined period of time intervals. So when the price falls below its moving average, it’s a signal to sell, and when it rises above its moving average, it’s a signal to buy. There are several kinds of moving average, including simple, weighted and exponential. The exponential moving average is the most often chosen as it takes into account both the most recent data, and the entire time period, and it is the one specifically used in the 5EMAS Forex System.
Moving average convergence/divergence (MACD) - a more detailed way of using exponential moving averages to detect price swings. This technique plots the difference between a 26-day and a 12-day exponential moving average. It takes a 9-day moving average as a trigger line, so that below this would be a “sell” signal and above this would be a “buy” signal. The MACD is often used in conjunction with other indicators such as the RSI.
Relative Strength Index (RSI) This 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.
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.
There are many more techniques but these are some of the most important ones. Successful Forex traders use three or four - if they all point in the same direction, it's a clear signal to trade. The 5EMAS Forex system uses very specific techniques to recognize trends and pullbacks, and you will be shown exactly step by step how to do it for maximum profit. Also you can learn more about Forex trading generally at http://www.bizwrite.co.uk/Forex/forexindex.html
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