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.

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.

Technical analysis simply means the use of past market information and direction, with the use of certain indicators to determine the next direction and trend of the market.

Many Forex technicians take a lot of market data from various market prices targets, and compare it with each other.

Price data is the most widely used information data to determine the next future market direction. Some other forex technicians will concentrate on volumes and other technical indicators.

The most important thing when using technical indicators is to concentrate, and focus on the market direction, with systematic analysis. This information is not collected within one day's trade, it is collected over time, or a long period of time.

And once you master the technique of using the indicators with an average level of accuracy, then i can guarantee you at least more that 60 percent success with your forex trading.

In short, all traders use at least one form of technical indicator. Even a beginner will first look at the chart, see the movement pattern, and then choose where to enter and which direction to face in the trade, whether going long or short.

The charts they look at help them determine the market price, and the movement over time. Although just gambling into a trade will not help you at all, and you can lose a hug chunk of your deposit.

Charts can also be a very useful tool for an advanced forex trader. The most important thing is know when to enter and get out of a trade position. An advanced forex trader will use more sophisticated technical analytical method to fugure out where a market direction is going.

Also fundamental data and informations will also help a technician to determine the market direction. But the truth also is that all the fundamental data is still embedded in the price dat, so if you do not know how to get across and understand your chart and data, then you might need the help of an experienced forex trader to help you figure it out.

Fundamentalists will tell you all they need is the happenings around the world, and they know when to go in and out of a trade. So don't bother about that, since we are talking about technical analysis on this page.

Entering the market at the right time, will help you guarantee a sizabe profit for your investment.

The assumptions of technical analysis are that all market prices, and market fundamentals are represented on the chart. Also you don't need to see or look for the hopes, anxiety, and other factors in the chart or market data.

Also technicians have discovered that history repeats itself, and the market moves in a direction that is exactly similar or at least in a way predictable. These are referred to as signals. These signals are patterns generated by the movement of price.

So therefore, technical analysis uncovers the secrets of the future market prices after studying and observing past market prices.


Prices have been discovered to move in trend, and technicians know that they are not just random movement, they are moving in a real predictable pattern. Prices moves in three directions: sideways, up and down.

Usually, trends continue over a period of time, once they are identified. So what technicians do are to look for the possibility of a trend movement and then they buy or sell into the market.

The main components of a forex technician are the volume charts, price charts, and many other graphical representations of different market informations that can be used to measure the strength and movement of a trend. This means that to be a technician, you must be able to use many other technical tools to forecast market direction, and not just rely on price charts alone.

If you are desiring to be a technician, you have to be very disclipned. The use of these technical tools require discipline. There are cases where many traders will still hang on to a position, even when the technical analysis tells them to enter or get out. All these are what a technician to be should handle.

For example, assuming you are long on the EUR/USD pair, and you establish a stop loss at around 30 pips from your entry point. If for some reasons your expectations are not correct, and the price moves and gets to your stop loss point, you should not hold on to that position expecting it to turn around and rise. You must have a real trading plan, on where to take your profits, and cut your losses.

Don't hang on to a lossing trade.

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.