Forex Technical Analysis Indicators

There are dozens of indicators used for foreign exchange technical analysis, each of which is the result of painstaking research by researchers. Technical indicator analysis is a quantitative analysis method for judging the trend of exchange rates based on certain mathematical statistical methods and using some complex calculation formulas. Mainly there are momentum indicators, relative strength indices, stochastic indices, etc. Since the above analysis often requires the support of certain computer software, it is only a general understanding for investors who trade real foreign exchange. But it is worth mentioning that technical indicator analysis is an internationalforeign exchange marketProfessional foreign exchange traders rely heavily on exchange rate analysis and forecasting tools. First, the application of the relative strength index (RSI)

The relative strength index reflects the balance of power between the long and short sides of the market. The index value fluctuates between 0 and 100. When it is around 20, it indicates that the short side is very strong and has almost reached its peak. There has been an oversold signal, and it is not far from the bottom of the price. The buying time is coming; when it is around 80, it indicates that the multi-party power is very strong, the market has overbought, and the short-term top is about to form. The selling time may be approaching.

Under normal circumstances, when the fast line (the line with frequent fluctuations) crosses the slow line (the line with relatively flat fluctuations) from top to bottom near 80, it is a sell signal; when the fast line crosses the slow line from bottom to top near 20, it is a buy signal.

Second, the application of the exponentially smoothed moving average (MACD) indicator.

The MACD indicator reflects the trend and intensity of market price fluctuations. The indicator value generally fluctuates between plus or minus 5. When the indicator value is positive, it means that the market is a long market (bull market); when it is negative, it means that the market is a short market (bear market).

When the MACD hovers below 0 for a long time, the indicator gradually increases, and once it breaks through 0, it is a buy signal; when the fast line crosses the slow line from the bottom up at 0, it is also a buy signal.

When the MACD hovers above 0 for a long time, the indicator gradually decreases, and once it breaks through 0, it is a sell signal; when the fast line crosses the slow line from top to bottom above 0, it is also a sell signal.

III. Application of Stochastic Indicators (KDJ)

The stochastic indicator reflects the change in market strength. Similar to the RSI, the indicator value also changes between 0 and 100. When it is close to 20, it means that the market is oversold and not far from the bottom; when it is close to 80, it means that the market is overbought and not far from the top. Investors can adopt corresponding investment strategies according to this law.

When the fast line crosses the slow line from the bottom up near 20, it is a buy signal; when the fast line crosses the slow line from the top down near 80, it is a sell signal.

IV. Flexible use of technical indicators

All kinds of technical analysis indicators are predictive methods that people use mathematical statistics principles to summarize on the basis of historical data. They all have their limitations. They must not be rigid. They must be based on the market atmosphere and fundamental factors at that time to make specific analysis and judgments.

1. Selection of different metrics

There are many indicators used for technical analysis, and there is no uniform standard for which one is better or worse. Investors can choose according to their preferences and degree of mastery.

According to the author's experience and personal preferences, the use of KDJ, RSI, and MACD in the foreign exchange market can fully analyze the trend of various currencies.

In terms of the sensitivity of the indicator, KDJ, RSI, and MACD decrease in turn, that is to say, KDJ can give a clear buy and sell signal first, but at the same time, this signal may be ahead; MACD gives a buy and sell signal at the latest, which is more reliable, but often misses better buy and sell prices. So, is RSI the best indicator? Not necessarily. RSI's buy and sell signals are not very clear, and it is often necessary to make judgments based on the market atmosphere at the time.

A more scientific approach is to use the three indicators at the same time to confirm each other. In practice, there will also be situations where the three indicators give different buying and selling signals. In this case, there are often sudden events in the market, such as the earthquake in Japan, the "9.11" incident in the United States, and the intervention of the central bank.

2. Selection of indicator parameters

Under normal circumstances, the index parameters do not require investors to modify them. Software developers have already given default parameters, unless they have a better understanding and experience, they can use the system default values under normal circumstances.

However, the choice of the indicator cycle is very necessary. The cycle of technical indicators can be selected by investors themselves, from short to time chart (TICK), long to daily, weekly, monthly or even annual. Different indicator cycles have different application ranges.

To determine the long-term trend of the exchange rate, you can use the monthly line; to study the medium-term trend, you can use the weekly line; to make short-term investments, you can use the daily line; to determine the trading timing of the day, you can use the 60-minute line or the 30-minute line; it has been decided to buy and sell immediately, you can use the 10-minute or 5-minute line to capture the best trading point.

3. Passivation of indicators

Since the designer of the indicator studies foreign exchange analysis based on a large amount of historical data, it reflects the laws of the general situation, that is, the laws of the normal situation. The market is ever-changing, and anything can happen. Therefore, the changes in the exchange rate will cause the phenomenon that the indicator cannot explain and predict. This situation is called the passivation of the indicator.