In this part three of using technical indicators, we will be talking about bollinger bands, MACD, and fibonacci replacements. So sit back and relax while you learn.

1. Bollinger bands
The use of bollinger bands are to determine extreme highs or lows with relationship to price. They come about with volatility curves. The use of bollinger bands are more complex han many others. It involves the establishment of parameters for trading, depending on the moving average of a specific instrument.
You might need the help of an experienced fores trader to help you dive through this technical indicator, because it can not be explained without many different diagrams.


2. MACD (Moving Average Convergence Divergence)
This indicator is more detailed moving average used to search out trading signals with the use of price charts. The MACD developed by Gerald Appel plots the difference between a 26-day exponential moving average and a 12-day exponential moving average. At most time, a 9-day moving average is used as a line for trigger. This means that when the MACD line crosses lower than the trigger, it means there is a bearish signal. And vice versa, for the bullish signal.

What many forex traders do is to allow MACD provide them with an early divergent signal so that they can have an idea of when to get into the market.

In the case where the MACD is positive, and there are higher lows, it could mean a signal for buying a position. And if your MACD shows lower highs, this can also mean a signal for selling a position.


3. Fibonacci retracements
This type of indicators are a series of numbers that was discovered by Leonardo da Pisa who is a mathematician during the 12th century.

The fibonacci retracement is very useful in analysing pullbacks in forex trading today. It involves the anticipation of trand changes not far from the created lines. After a real and good price move in either direction, there is usually a price retracement along the original move in either direction. As these retracements go on, there are usually occurrence of supports and resistance levels at or close near the Fibonacci retracement levels.

Another indicatoe we will talk about is the Stochastics and the Relative Strength Index. These tow indicators are also very helpful in market forecast.

1. Stochastics
This indicator helps fores traders to determine and monitor a trend's sustainability. Forex trader can determine the closing price of a current trade with relationship to the performance of the previous indicator that was analysed. In the use of stochastics, two measured and represented lines %K and %D are drawn on a scale from range 0 to 100.

If you get an indication above 80, it means that there will be a very strong upward movement of price, and if your indications show less than 20, it means there is also a strong movement downwards.


You simply do not need the mathematical calculations, all you need is what you are told by the stochastics.

The fast line and fast indicator is the %K, while the slow line is the %D. When there is about to be a reverse direction in the market prices, the %K line crosses over the %D line.


Take note that sometimes there could be several crossing of both lines in a choppy market, when prices are flunctuating, so you don't have to bother about it. It actually means no market directions at this point.

The use of stochastics is very helpful in the determination of trend strength, and the possibility of a reversal in market prices.


2. Relative Strength Index
The use of the RSI is mainly to measure the momentum of a market direction. Just like the stochastics, it is plotted on a range scale of 0 - 100. If you get a measurement of more than 80, then you buy into the market, and a measurement of less than 20, you need to sell out of the market.

With this you simply understand that prices do not go in one direction forever, when the go up, at a point it must surely come down, and RSI will help you determine that time. You can also act on divergence as a forex trader using RSI, but you have to be patient enough to wait for conformations before diving to open a position.

These two indicators explained in part 2 are for your to master and get tem to work in your favor.

Once you tap into the use of technical indicators, and you master them, then you are on the beginning to making good profits from forex trading. In the use of technical analysis, the main tool is the price chart. But you also have to know that this is not the only importnt thing. You can just look at a price chart, and expect to drive your way into making profit.

Technicians have emplyed the use of candlesticks, bar charts, Xs and Os, and all these have helped them get into the basic of understanding the price direction, and knowing everything about it. In this section we will be talking moving averages. The moving averages indicator exist in 3 types.

We have the simple, weighted, and exponential. All these functions in different ways. Lets see them.


1. Simple moving average
With this indicator, you can give an equal weight to each price point over a period of time. Here the user will determine if the high,low, or close is used, then he adds the price points together and averages it. Then this individual price points are added to the previous string and a line is drawn. As new price points are added, the sample set will continue to drop off the oldest points.

This is actually the most commonly used moving average among all of them.


2. Weighted moving average
With this type, there is more emphasis on the latest data. There is always a weighting factor which varies from day to day. You will then multiply each data point by the weighting factor. When you use this, you will be able to smooth out a curve, and have the average to be very responsive to current price changes.


3. Exponential moving average
This also works like the weighted moving average. The exponential moving average multiplies a percentage of the most recent price by the former average price of that period. This is a more complex method, but once you master the logic, then you are on the go.

You can be sure that all 3 types of moving work different and you need ample time to study, draw, and plot as many lines as possible to be able to determine the market trend.

In short, being a technician is not a day's work, it is about devotion, and setling for the best and right indicator that works for you.

The use of trendline analysis is just to help forex traders establish levels of resistance and support for your market prices. With this analysis intact, you will be able to know when to get in and out of your trading positions.

Although, many traders do not focus on using trendline analysis, because they feel it is excessively subjective in nature. Well, that is not altogether false, but there are also many advantages that are offered to traders, such as focusing the attention on the price movement, and filtering out the market noise.

So if these reasons are there, trendline analysis is the first thing to consider when determining the existence of the trend. If you do not get anything from your trendline analysis, then there is not a trend afterall.


Trendline analysis is most suited when it starts with a long timeframes such as the daily or weekly charts, then it moves into a more shorter timeframe (hourly or 4-hourly). By using this, shorter support/resistance can be seen. You will surely be able to recognize the vital support/resistance levels first, and then the less vital onces next.

With this feature, you will be able to focus on good, long trends, rather than staying on short trends that show themselves.

Another technical indicator which can be used to identify if a trend is in place is the directional movement indicator (DMI). With the use of DMI, guesswork is removed, and the confirmation of the trend is validated in combination with trendline analysis.


The DMI system composes of the ADX (average directional movement index) and the DI+ and DI- lines.

The ADX can determine if there is a market trend, not minding if it is an uptrend or downtrend. If you get a measurement above 25, it indicates there is a trend in position, and a reading below 20 means that there is no trend in position. Also you can determine the strength of a trend. If the ADX is high, then the trend is strong, and if the ADX is low, the trend is not strong.

The DMI system gives the best result when the components are both used. You can use the DI+ and DI- lines as your trading signals. When the DI+ line crosses up through the DI- line, it means a buy signal, and when the DI- crosses up through the DI+ line, then it means a sell signal.

Knowing which technical indicator to use in the identifying of trends is vitally important as much as making profits from the forex market.

Trust me, the trend can go agaoinst you if you don't have a good strategy, if you can't identify it, and if you don't know which technical indicator to use. You can be sure the trend will be your enemy at this time.

For the purpose of study, we will discuss on which technical indicator you can use to identify trends.

You should also be aware that trend do not occur as usual as sideways movement. Sideways occurs all the time, but when trends show up, it is an opportunity for you to tap into it and enjoy the ride to profits making.


As an example, currency market have shown to have more long-term trends than many other markets. These long-term trends as we know from previous discussions are caused as a result of macroeconomic elements.

In the history of the forex market, the analysis have shown that the periods that trend occurs are only 1/3, while that of no trend accounts for 2/3 of the market price over a period of time.


Making the situation more difficult is by using one or two technical indicators to identify the direction of the market, and then open a position based on this analysis. This type of approach opens traders to the trend/no-trend paradox. So you will usually find many forex traders closing a position and then realizing that the main and real trend is just unfolding and starting to move. Apparently, they miss out the action.

Again, there are traders who hold on to an open position, thinking a trend will come out of it, whereas there is no trend at all.

In other not to be caught in this trend/no-trend paradox, there are several indicators and techniques that will be shown to you to help you determine when trends are coming into existence.

The essence of this information is to give you an indication of your real entry point, and your real exit point. Also you get opportunities to know what risk management strategies will work for you. You apparently do not need to set up a lot of techniques, but you can get just a few techniques and turn profits into your accounts daily.

These are some trade examples that will help you know that forex trading is real. You can check up the statistics whenever you want to, and also be confident to study it from time to time.

I have also learnt that examples help fores traders to set goals, and targets for their trading techniques, which is a good thing. Here are some examples for your learning.


1. The first example was between the EUR/USD pair, and it occurred in the fourth week of June 2002.

Fisrt, i want you to observe the hourly and 10-minute EUR/USD charts. Take note of when the price is above the 200-period moving averages on the two charts. On the hourly chart, the price is almost above the 200-hour moving average, and it very much means an uptrend. On the 10-minute chart, prices reman above the moving average towards the last third of the chart. So what you have to look out for is find an entry point, that is the market is within 20 points of the moving average on the 10-minute chart, and also the stochastic lines ave made a cross.

So at about 1 p.m. and the midnight on June 27, the requirements are met. That is the entry point is where the fast stochastic cross over the slow stochastic, when the indicator is below 20 points.

You see there is a buy at the 0.9883 price at about 8 p.m., and a stop loss is placed at 0.9858, which is 10 points below the 200-bar moving average. And this stop loss is trailed upwards whenever the price rises. And also the currency pair gets to its top at 0.9992, and the stop loss is now at 0.9967 where the market position was closed and a profit of 84 pips was made which is $840 profit.


2. The second example gives an illustration that is similar to the one above, but in this case it is the USD/JPY currency pair.

Take note that prices were trading mch below the 200-moving average after the 21st of June. On the 10-minute chart, the market prices went below the moving average after 10 a.m. on 27th June, which clearly indicates going short on the currency. Also observe that prices went below the 20 points of the moving average. At 5 p.m., a position was opened at 119.57, just as the fast stochastic line crossed below the slow stochastic line, when the indicator was above 80. A trailing stop was placed at 119.86, and the trade was still on till the next day, and it was closed at price 118.58 for a 99 pips profit.

For you to be successful as a forex trader, you definitely need to understand the use of indicators for determining the direction of the market.

Getting to understand this aspect of forex trading gives a real edge over ordinary speculators. Although it also takes time to be able to understand them, but once you do, then you are on the beginning of your wealth creation using forex trading.

For the purpose of introduction, you will be given a few technical indications that usually help forex users get a view of where the market is going over a period of time. This time period may be one day for intra-day traders, or a long term for long term traders. Also, mastering these technical indicators is also very important.

Some of these indicators that are helpful are grouped into different category for your easy knowledge and understanding.


1. Strength indicators
These type of indicators gives you an idea of the strength of the market and its direction with regards to price and time, with the amount of participation of in a trade.

An example of this indicator is the "volume indicator". With this indicator you can be sure you are forcasting the right market direction.


2. Trend indicators
The word trend in forex means the consistent movement of price in a particular direction with regards to time. There are 3 types of trends, which are the up trend, down trend, and sideways. With this kind type of address, you can simply figure out when to enter and get out of a position.

Some examples are the moving averages, trend lines, and others.


3. Cycle indicators
This type of indicators gives a repetition of patterns on market direction. Such events as eletions, particular seasons, and many other activities fall under this cycle indicator.

Examples are the Elliott wave indicator.


4. Volatility indicators
An example is the Bollinger bands. This kind of indicator describes sizes, and variations in market prices.
Of course prices flunctuates, and getting the right indicator is the key.


5. Support/resistance indicators
With this type of indicator you can determine the limits of the market prices. This means that you can set a resistance for price rise, and a support for price falls.


6. Momentum indicators
Examples are Stochastic, MACD, RSI. With this, you can figure out the speed of market prices with relationship to time.

Fundamental analysis is simply the examination and observation of the main elements that affects the economy of a specific instrument. This observation makes an attempt to forecast the action of price and market movement by simply analyzing economic indicators, societal factors, government policies, and many others with the market cycle. Looking at the forex market, you will discover that it is affceted by many factors which in turn enable analyst to forecast correctly the next market movement. In an instance, looking at a clock may seem very simple in order to tell the time, but a fundamentalist will tell you what brought about that time, and what it will be in the future. Sounds simple right?

Actually, forex analysis is divided into the technical analysis and the fundamental analysis. Most of the time, when you introduce yourself as a forex trader, they ask you if you are a technician or a fundamentalist, this is the situation of the market operation.

These two methods are interdependent. The fundamentalist will in a way also keep an eye of price charts, while a technician also rely on certain economic information and data, that affect the price of the market.

You can be certain that fundamental analysis will only give you a view of the conditions of the market and where it might be heading, but it won't give you an exact price market situation. Looking at this example, when you start to analyze an economic forecast of an employment report, you would be needing to understand the forces that bring about this change, but another important thing is getting to understand how it relates to developing a strategy that works for you on how to trade the currencies involved with your analysis. That is getting into the market, making profits and getting out of the market.

A forex trader that uses fundamental analysis understands that his analyses are right. By siply analyzing the interest rates, and excahnge rates of financial institutions which as caused by disasters, unemployment, and many other factors, he gets his conclusion and knows when to get into the market for profit making.

Economic indicators are pieces of economic and financial data which are made know to the pulic by either the private sector or the governmnet. These informations which are published regularly help market observers in monitoring the situation of the economy. With the significance of these data, market prices can be greatly affected by volumes and prices tend to move in the direction of the effect.

Fundamentalist therefore keep their ears open, to get these data and information, so that trade positions can be decided.

Economic indicators have the ability to bring about great volumes of positions, and therefore move market prices in a particular direction. In order to keep track of these data, you must have a detailed information on dates and releases of these data, and how they can affect prices.

Keeping track of these data of economic indicators can enable you make meaning out of some irrelevant and unexpected price movement in the market.

Example of these indicators are as follows:


1. The Gross Domestic Product (GDP)
With the use of GDP, traders can know the pace of a country's growth, and this is one of the major indicators of fundamental analysis.


2. Industrial Production
This shows the strength of a country's industrial ability. The companies, factories, industries, and their uses are all measured in this indicator.


3. Purchasing Managers Index (PMI)
This indicates a country's manufacturing sistuation. These situations are export orders, import orders, prices of commodities, employment, and many others. This indicator is also divided into 2, which are the manufacturing and non-manufacturing sub-indices.

Other indicators includes Producer Price Index (PPI), Consumer Price Index (CPI), Durable Goods, Employment Cost Index (ECI), Retail Sales, and Housing Starts.