Technical Indicators

One of the main cornerstones of your new Forex Trading System will be a method or technique that can help you select the entry and exit points of all your trades. There are a large number of Technical Indicators that can be used to assist you in achieving this task including Stochastics, RSI, Bollinger Bands, MACD, Moving averages plus many more.

The Forex Market with anywhere near 100% accuracy, a recommended way forward would be to select one Technical Indicator at a time and then to determine its win:loss ratio and expectancy value as will be shown later in this course. There is a great amount of free information on the internet about Technical Indicators. Here are brief descriptions of two of them:

1. Simple Moving Average (SMA)

This indicator is calculated by dividing the sum of the past N period closing prices by the number of periods N. This is a lagging indicator with which traders try to use past price data to forecast future movements. The moving average is more accurate when used with longer number of periods. However, this also has the disadvantage of making it slower to react to new price changes.

2. Exponential Moving Average (EMA)

The Simple Moving Average is a very good tool for quickly establishing Forex market trends. However, it does not cope very well with rapid price movements (spikes) because it gives just as much emphasis to older price data as to new. As traders are recommended to base their technical analysis on the latest data, the Exponential Moving Average indicator provides an improvement because its formula places more emphasis on recent currency quotes.