📈 Essential Forex Technical Analysis

Trading the Foreign Exchange market by using technical analysis is a common but complex task for every Forex trader. Here are some major technical indicators related to the Forex market. 🔗 More: » Technical Analysis Guide

---

Relative Strength Index (RSI)

The RSI measures the ratio of upward and downward price movements on a scale from 0 to 100. An RSI of 70 or higher signals that the market is overbought, meaning prices have risen more than expected. An RSI of 30 or below signals the market is oversold, meaning prices have fallen more than expected.

For intraday Forex trading, it’s recommended to use RSI on the 5-minute chart. It’s also helpful to look for divergences between the price chart and the RSI chart on the H1, H4, or D1 charts, as these divergences can provide strong reversal signals.

Key tips for trading with RSI:

(i) Use RSI(21) instead of the standard 14-period setting

(ii) Divergences between price and RSI can signal powerful reversals

(iii) Use RSI(21) on the H4 and D1 charts to evaluate key price reversals or continuations

(iv) Use RSI(21) on the 5-minute chart for short-term overbought or oversold levels

(v) To time trades well, wait for RSI(21) to reverse after reaching overbought or oversold levels (20/80)

🔗 More: » RSI Precision v.3 (Multisignal Indicator)

---

Stochastic Oscillator:

The Stochastic Oscillator helps Forex traders identify overbought or oversold exchange rates on a scale of 0 to 100%. It is based on the idea that in strong upward trends, closing prices tend to be near the highest point in the range. In strong downward trends, closing prices tend to be near the lowest point. The oscillator produces two lines (%K and %D) used to define overbought or oversold levels in the Forex market.

🔗 More: » Technical Analysis Indicators at the Trading Center

---

MACD (The King):

The MACD indicator plots two momentum lines. It creates a momentum oscillator by subtracting the longer moving average from the shorter one. When the MACD and trigger lines cross, it signals a possible trend change.

Use MACD on H1 and longer timeframes to reduce false signals. Look for divergences between the price chart and the MACD chart (H1, H4, D1), as these can give reliable reversal signals.

Tips for trading with MACD:

(i) Use the standard MACD settings (12, 26, 9)

(ii) Divergences between the price chart and MACD histogram can signal important price reversals

(iii) MACD signals are more reliable on longer timeframes (H1 and above)

---

Fibonacci Numbers & Retracement:

• Fibonacci Numbers

Fibonacci Numbers are a sequence where each number is the sum of the two before it (1, 2, 3, 5, 8, 13, 21, 34, 55, etc.). The ratio of any number to the next larger one is about 0.618, known as the Fibonacci Retracement Number. Fibonacci numbers are widely used in the technical analysis of stock indexes.

• Fibonacci Retracement

Fibonacci Retracement is a technical analysis tool that identifies potential support/resistance levels during price pullbacks. It plots horizontal lines at key Fibonacci percentages (23.6%, 38.2%, 50%, 61.8%, 78.6%) across a prior significant price move. The concept suggests prices often retrace a predictable portion of that move, frequently pausing or reversing near these levels—especially 61.8%. Traders watch price reactions at these levels to inform trade decisions and assess trend continuation.

🔗 More: » Read More on TradingFibonacci.com | » Trading with Fibonacci Primes -The Platinum Sequence of Numbers

---

Gann Numbers:

W.D. Gann used angles on charts to identify support and resistance areas and to predict future trend changes.

🔗 More: » A Modern Trading Approach to the Law of Vibration (W.D. Gann)

---

Elliott Waves Theory:

Elliott Wave Theory predicts future price movements based on past wave patterns. A typical Elliott wave pattern has five waves moving up, followed by three waves moving down.

🔗 More: » Elliott Wave Principle

---

 

Gaps:

Gaps are empty spaces in bar charts where no trades occurred. An up gap happens when the lowest price of a day is higher than the previous day’s highest price. A down gap happens when the highest price of a day is lower than the previous day’s lowest price. Up gaps usually show market strength, while down gaps indicate weakness. They often mark the start or end of major price trends.

---

Moving Averages and Trends:

Moving averages smooth price volatility, confirm trends, and define support and resistance levels. The 50-day and 200-day moving averages are commonly used.

Tips for trading with moving averages:

(i) Watch for crossovers between price and EMA(50), EMA(100), EMA(200) to spot reversal signals

(ii) You can use Fibonacci numbers for moving average periods (8, 13, 21, 34, 55, 89, 144, 233)

(iii) Moving averages should be combined with other technical analysis tools, as they can’t predict trends alone.

---

 

TradingCenter (c)

You are not allowed to publish, reproduce, translate, merge, sell, rent or distribute any content on this website (TradingCenter). You are also not allowed to create a derivative work or utilize framing techniques to enclose any content on this website (TradingCenter).