The Basic Application of Technical Indicators in Foreign Exchange Investment

Technical indicators have penetrated into the hearts of every foreign exchange investor. Those who really engage in foreign exchange operations have a set of technical indicator systems that they are accustomed to. This system will be of great help to us after long-term testing. Especially when trading on platforms such as IG Forex, being familiar with technical indicators can improve the efficiency of analysis. First, the definition of technical indicator method. Technical indicators are a term that we are all very familiar with, but there is no clear definition of technical indicator method at present. According to our own understanding, we provide the following definitions for readers' reference.

The technical indicator method is defined as:

The original data source is processed according to the pre-specified fixed method, and the processed results are made into charts, and the stock market is developed with the made charts. Such a method is the technical indicator method. The original data source refers to the opening price, the highest price, the lowest price, the closing price, the transaction volume and the transaction amount, and sometimes the number of transactions. A total of six or seven. The rest of the data are not original data sources.

Processing the original data source refers to shaping part or all of the data, organizing and processing it, so that it becomes what we want. Different processing parties produce different technical indicators. In this sense, we know that as many technical indicators as there are, there will be as many ways to process the original data source; conversely, there will be as many technical indicators as there are less original data sources.

Once the technical indicators are produced, they will eventually be reflected on the chart. Processing the original data source is not only about turning some numbers into others, but also possibly dropping some numbers or adding some numbers.

II. Methods for generating technical indicators

From a broad perspective, there are two types of methods for generating technical indicators. The first type is to generate new numbers according to strictly defined mathematical formulas. This category is an extremely broad category of technical indicators. The famous KD indicators, RSI indicators, MA indicators, and Directional Movement Indicators all belong to this category.

The second type is that there is no clear mathematical formula, only the method of processing the text description of the data. This type of indicators is relatively rare. This chapter only introduces the first type, and the second type can be examined in relevant books.

III. Application rules of technical indicators

The application rules of technical analysis are mainly carried out through the following aspects: (1) indicator deviation; (2) indicator crossover; (3) indicator high and low; (4) indicator hovering; (5) indicator turning; (6) indicator blind spot. Indicator deviation refers to the inconsistency between the direction of the indicator and the direction of the stock price. Indicator crossover refers to the intersection of two lines in the indicator, which is often referred to as the golden fork and the dead fork. High and low refers to the indicator entering the overbought zone and oversold zone. Indicator hovering refers to the indicator being in a state of both advance and retreat, without a clear judgment of the future direction. The turning point of an indicator refers to a U-turn in the indicator's graph, which is sometimes the end of one trend and the beginning of another. The blind spot of an indicator refers to when the indicator is powerless.

IV. The essence of technical indicators

Each technical indicator is observed from a specific aspect of the stock market. Through a certain mathematical formula to generate technical indicators, this indicator reflects the deep connotation of a certain aspect of the stock market, which is difficult to see only through the original data source.

In addition, there are some basic ideas we have known for a long time, but they only stay at the qualitative level, without quantitative analysis. Technical indicators can be quantitatively analyzed, so that the precision of specific operations can be greatly improved. For example, we all know that when the stock price keeps falling, there is always a rebound and a final time when it falls too much. So to what extent can we buy it? Just relying on the previous knowledge of deterministic aspects cannot answer this question. Technical indicators such as the rate of departure can help us solve this problem to a large extent. Although it is not 100% to solve the problem, it can at least help us quantitatively before we take action.

The relationship between the technical index method and other technical analysis methods

Other technical analysis methods all have one thing in common, that is, they only pay attention to price and do not pay attention to volume. If you look at it purely from a technical point of view, there is no information on volume, and other methods can work normally. You can still conduct analysis and research, and you can still make market forecasts. We just say in a very general way that you must cooperate with volume. Due to the wide variety of technical indicators, there are many aspects to consider. Almost everything that people can think of can be reflected in technical indicators, which is incomparable to other technical analysis methods.

In the analysis and judgment of technical indicators, the basic conclusions of other technical analysis methods are often used. For example, when using indicators such as Zhu J, we need to use the results of head and shoulder shape, neck line and double top in morphology, as well as the analysis techniques of support line and pressure line in tangent theory. From this, it can be seen that it is very important to comprehensively study various methods of technical analysis. It is not good to focus on one method and be ignorant of other methods.

VI. Issues requiring attention in the application of technical indicators

Technical indicators are ultimately a set of tools that we use to make predictions about the stock market.

Each tool has its own scope of adaptation and applicable environment. Sometimes some tools have poor results, and sometimes the results are good. When people use technical indicators, they often make the mistake of copying conclusions mechanically, without asking about the conditions for the establishment of these conclusions and the possible accidents. The first is to blindly and absolutely believe in technical indicators. After making a mistake, they go to the other extreme and think that technical analysis indicators are useless at all. This is obviously a wrong understanding. It can only be said that indicators will not be used. For example, if a knife falls into the hands of a martial arts master, this knife can kill the opponent, or if this knife falls into the hands of a person without martial arts, it may be killed by others. The result is diametrically opposite to the previous one. We can't say that the knife is useless. The knife is useful, depending on whether it will be used.

Each indicator has its own blind spot, that is, when the indicator fails. In practice, you should constantly summarize and find the blind spot. This is very beneficial for the use of technical indicators to make fewer mistakes. When encountering a technical indicator failure, you put it aside and consider other technical indicators. Generally speaking, the east is not bright, the west is dark, and the south has the north. There are many technical indicators, and there will be a few useful guidance and help for us at any time. Although this help may not be big at times, it is better than nothing. At least I have a little bottom of my heart and operate with a purpose.

It is necessary to understand each technical indicator, but it is impossible to take into account the many technical indicators. Each indicator also has the ability and accuracy to predict the general trend. The usual method is to use four or five technical indicators as the main one, supplemented by other indicators. The choice of these four or five technical indicators has its own habits, and it is not easy to specify in advance. However, as the actual combat effect is good or bad, these indicators should be constantly changed.