Technical Indicators

We will train you on 3 indicators in this tutorial

  1. RSI
  2. MACD
  3. Moving Averages

 

RSI

 

The RSI is an indicator which is used to show overbought and oversold conditions on a currency pair. It is called a momentum oscillator which means it shows the momentum of a currency.

The RSI is numbered 1 to 100 and when the number goes over 70 that is considered overbought and that means that currency pair will soon reverse to the downside.

When the RSI goes below 30 that is considered oversold and that means the price should continue to trade up.

RSI

One way to use this indicator is to first identfy the trend with trend lines. Then use the RSI to find entry points that are in the same direction with the trend. For example you have an up trend and there is a slight pull back and the RSI goes down below 30. Once the price moves back above 30 then you have an entry point for a long trade.

MACD

 

MACD stands for Moving Average Convergance Divergence. The MACD is used in three main ways by traders to find entry points.

There are settings to plot into this indicator and the most common is 12,26,9 these numbers are the differences of a 12, 26, and 9 day EMA. The EMA is Exponential Moving Average.

I would recommend leaving these parameters right here because that is the settings that will yield the best results.

Center Line Crossover

On the MACD there is Positive and negative line. When the indicator moves from one to the other that is a trade signal. The center bars will be either up or down

Center Line Crossover

Moving Average Crossover

When the moving averages on the MACD cross that can be taken as a signal when you see the cross you can enter the trade in the direction the averages are moving.

Divergences

A divergence is when the price reaches a new high or new low but the moving average on the MACD does not. This is many times an indication that the pair is going to change direction.

Divergences

 

Moving Averages

Moving averages are the closing price of the currency pair added up and then divided by the number of days. There is Simple Moving Average(SMA) and Exponential Moving Average(EMA).

* Note: Moving Average Crossovers only work in trending markets. Do not attempt during a consolidation period. To trade in consolidation there is a great charting tool available called Proact Charts

A Simple 14 day moving average is 14 days closing prices added up and divided by 14. Moving averages are used to identify the trend. There are many ways to use moving averages and traders should become familiar with them.

EMA is an Exponential moving average and they move faster than Simple Moving Average. EMA is weighted with a formula to speed the average up.

Besides being used to identify trends moving averages can be used to determine entry points for traders.

One such way is to have a fast and slow moving average on the chart at the same time. and when the two averages cross that triggers an entry point.

Moving Averages

When the Moving Average crossover occurs that is when you would enter long.

Below is a educational video on how to set a profit target.

More Indicator Articles

Why Use Indicators?
How to Trade the Parabolic SAR
Stochastics Indicator
Using Murray Lines
Forex Power Indicator
Technical Indicators
Using Simple Moving Averages
Ichimoku Kinko Hyo Indicator
Average True Range (ATR)

Learn more about Trading Forex on our Tutorials page.

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