Technical analysis is the study of historical price action in order to identify patterns and determine probabilities of future movements in the forex market indicators are used by technical analysts to help interpret price data and generate tradable buy and sell signals through the use of technical studies, indicators, and other analysis tools. Foreign exchange indicators and charting software can be a great deal of help for savvy traders who know how to use them when trading the forex.
Technical indicators are mathematical calculations that use historic price action and volume to forecast future price movements, providing trade entry and exit signals. These signals suggest a potential time and price for a trader to enter a trade, in order to profit from the predicted move in price. Technical indicators are usually displayed over or below price charts to help traders identify trends and overbought or oversold situations.
Using technical analysis allows you as a trader to identify range bound or trending environments and then find higher probability entries or exits based on their readings. Reading the indicators is as simple as putting them on the chart. Knowing how to use any one or more of the four indicators like the Moving Average, Relative Strength Index (RSI), Slow Stochastic, and Moving Average Convergence & Divergence (MACD) will provide a simple method to identify trading opportunities.
Understanding when to open or close a trade is key to successful forex trading and a crucial part of learning how to trade currency pairs. Remember, there is no magical combination of technical indicators that will unlock some sort of secret trading strategy. The secret of successful trading is good risk management, discipline, and the ability to control your emotions. Anyone can guess right and win every once in a while, but without risk management it is virtually impossible to remain profitable over time.
As a trader progresses through the years, they often come to the revelation that the system with the highest level of simplicity is often best. Trading with a simple strategy allows for quick reactions and less stress. If you are just getting started, you should seek the most effective and simple strategies for identifying trades and stick with that. One way to simplify your trading is through a trading plan that includes chart indicators and a few rules as to how you should use those indicators.