There are several technical indicators, but every one does not need to study all, as that can confuse a Forex trader. It is better to concentrate to selected few indicators only. Some of the key indicators used in technical analysis are mentioned as below.
- Bollinger Bands
- A middle band being a N-period simple moving average.
- An upper band at K times a N-period standard deviation above the middle band.
- A lower band at K times a N-period standard deviation below the middle band.
Typical values for N & K are 20 and 2 respectively.
If the price rise above the upper band, after having remained between the two bands for quite sometime, then it indicates that price is now bound to go higher and buying can be initiated. If the price falls below the lower band, after having remained between the two bands for quite some time, then it indicates that price is now bound to fall and hence selling can be initiated.
Many traders use the moving average line or middle line to initiate their trades. When the price of security rises above the middle line they initiate their buying and when the prices of a security falls below the middle line they initiate selling. below chart illustrates Bollinger band signals.
2. Moving Average Convergence Divergence (MACD): - MACD stands for Moving Average Convergence Divergence, is one of the commonly used indicators in Forex trading analysis. It was invented by Gerald Apple. MACD shows the relationship between two price moving averages. A 9 day EMA of MACD called the 'signal line", is then plotted on MACD, to give the buy and sell signals.