What are the most used technical indicators in forex trading?

Through the entire experience of trading in the currency market - i have learned quite a substantial amount of knowledge of what the other traders used as a guide to open buy or sell position in forex. Thanks to forums, investopedia, blogs, etc that have provided all the knowledge through users experience.

Why it is important to know what kind of indicators people used the most is simply because in trading you want to be with the major crowds with the most money. Although this is not 100% but seriously if you are using something else other than what the most traders are using then you are going to be among the losers that never learnt. So basically by knowing what technical indicators the people used means you are making an effort to follow the majority. Why the majority? because the majority wins as they have more volume of money collectively as opposed to minority. So why on earth should we follow the losers.

In basic principle most technical indicators are primarily built based on price actions, historical price, and also moving average. Price actions and historical price is actually almost the same thing although there is a slight differences between them. For example price action is depending current price movement based on the predictable graph patterns whereas the historical price is based on historical graph movement where the price fluctuates. Moving average are the basic principle of most of the indicators such as MACD, Stochastic, RSI, Bollinger Bands, Parabolic SAR, Average Directional Movement Index (ADX), etc.

Based on what i have learnt this is the list of indicators that traders mostly used to trade in the forex market:

1. Price Action (Support / Resistance) or Fibonacci
2. Historical Price (Graph Patterns)
3. Trend Line
4. Moving Average Convergence Divergence
5. Stochastic

Moving average have many variation but the most easiest to use and effective are the MACD and Stochastic. Other indicators such as Momentum, Simple Moving Average, Bollinger Bands, etc are more difficult and less effective. The reasons is simplicity and most people prefer to be simple because being complicated is not going to do any better when trading as you are predicting the unpredictable. Therefore better to be simple.

Learning complicated indicators aren't going to help very much in Forex trading but being able to use combination of simple indicators that compliment one another in trading decision making is much more valuable. For example MACD and Stochastic combination is more effective compare to use one of it.

Apart from that never ignore the fundamental indicators when trading because the volatility of the market is depending on it especially the unpredictable Non-Farm Payroll data where technical indicators doesn't apply. For those who believe in 100% technical indicators - they are simply dead wrong. Watch out every NON-Farm Payroll and you will understand what it means as there are non of the technical indicators can predict the movement. Therefore always look at the economic calender i.e. Forex Factory to check what economic data are release on everyday of trading. Usually economic data release coincide with the volatile movement of the market and smart traders usually use it on their advantage together with the technical indicators.

Despite all of this we cannot predict the traders mind during their time of trading, they could used any of those indicators and their timing to execute are unpredictable. Being a perfectionist is not of any good in forex and many have fails that we didn't really realized. Because everyone would be rich today if Forex is easy - even the experts from the banking industry failed without we knowing it. You may never know most people might have failed!!

Forex Fundamental Observation - Week 1 (Feb 2014)

This is fundamental observation based on economic data release to prove that market fluctuations / movements is not entirely based on technical factors. In fact in smaller time frames the market is fluctuating based on 95% the outcome of the economic data versus its previous data. The table and chart shows during economic data release the market will start to make a move temporarily or permanently to target certain support/resistance points.

This analysis have open perspective to a new level of understanding on the Forex market fluctuation and improve effectiveness in practical trades. The question is can you predict where the crowds is thinking to move ahead, when and how much?

Date	Time	Currency	Economic Data	Previous	Forecast	Actual
3 Feb 2014	11:00 PM	USD	ISM Manufacturing PMI	57	56.2	51.3

Date	Time	Currency	Economic Data	Previous	Forecast	Actual
3 Feb 2014	5:30 PM	GBP	Manufacturing PMI	57.2	57.1	56.7
	11:00 PM	USD	ISM Manufacturing PMI	57	56.2	51.3

Date	Time	Currency	Economic Data	Previous	Forecast	Actual
4 Feb 2014	11:30 AM	AUD	Cash Rate	2.50%	2.50%	2.50%
	11:30 AM	AUD	RBA Rate Statement

Date	Time	Currency	Economic Data	Previous	Forecast	Actual
4 Feb 2014	5:30 PM	GBP	Construction PMI	62.1	61.6	64.6

Date	Time	Currency	Economic Data	Previous	Forecast	Actual
5 Feb 2014	9:15 PM	USD	ADP Non-Farm Employment Change	227K	191K	175K
	9:15 PM	CAD	Building Permits m/m	-6.6%	2.3%	-4.1%

Date	Time	Currency	Econommic Data	Previous	Forecast	Actual
5 Feb 2014	5:45 AM	NZD	Employment Change q/q	1.2%	0.6%	1.1%
	5:45 AM	NZD	Unemployment Rate	6.2%	6.0%	6.0%

Date	Time	Currency	Economic Data	Previous	Forecast	Actual
5 Feb 2014	5:30 PM	GBP	Services PMI	58.8	59.1	58.3

Date	Time	Currency	Economic Data	Previous	Forecast	Actual
5 Feb 2014	9:15 PM	USD	ADP Non-Farm Employment Change	227K	191K	175K
	11:00 PM	USD	ISM Non-Manufacturing PMI	53	53.6	54

Date	Time	Currency	Economic Data	Previous	Forecast	Actual
06 Feb 2014	8:30 AM	AUD	Retail Sales m/m	0.7%	0.5%	0.5%
		AUD	Trade Balance	0.08B	-0.27B	0.47B

Date	Time	Currency	Economic Data	Previous	Forecast	Actual
06 Feb 2014	8:45 PM	EUR	Minimum Bid Rate	0.25%	0.25%	0.25%
	9:30 PM	CAD	Trade Balance	-1.5B	0.7B	-1.7B
		EUR	ECB Press Conference
		USD	Trade Balance	-34.6B	-35.8B	-38.7B
		USD	Unemployment Claims	351K	337K	331K

Date	Time	Currency	Economic Data	Previous	Forecast	Actual
7 Feb 2014	9:30 PM	CAD	Employment Change	-45.9K	19.7K	29.4K
	9:30 PM	CAD	Unemployment Rate	7.2%	7.1%	7.0%
	9:30	USD	Non-Farm Employment Change	75K	185K	113K
	9:30	USD	Unemployment Rate	6.7%	6.7%	6.6%

Date	Time	Currency	Economic Data	Previous	Forecast	Actual
7 Feb 2014	5:30 PM	GBP	Manufacturing Production m/m	-0.1%	0.6%	0.3%
	9:30 PM	USD	Non-Farm Employment Change	75K	185K	113K
	9:30 PM	USD	Unemployment Rate	6.7%	6.7%	6.6%

AUD-USD | USD-CAD Fundamental Analysis - 07 December 2010

Monday 07 December 2010 economic calender consist market components that might trigger the movement of the AUD-USD and USD-CAD pairs.

AUD-USD Fibonacci range from 100% to 0% provide a strong indication that the pair might be experiencing side-way trend in the long-term. The stability of Gold value in today's market should give the Australian Dollar strong backing to maintain its value even if the US dollar might be heading towards bullish trend against the Britain's Pound, Canadian Dollar, and Euro.

Residing at 0% Fibonacci line USD-CAD is signaling a big bullish trend waiting ahead for the long-term period.

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Fundamental Forex Trading - New Area of Research

Involving so much in group discussion forums sharing knowledge and ideas with others create new area of knowledge to learn about the forex market. It seems that technical indicators becoming less significant in today's trading practice and many traders has shifted their practices to fundamental. Despite of all the relevant of MACD, Stochastic, Bollinger Band. Some people still can be more successful just by using price actions and economic data release to trade in the forex market. In fact some traders claimed that technical indicators can be misleading compare to fundamental tradings. This claim quite true if you look at the current situation of the EUR-USD market where some indicators are showing oversold and yet the market has not making any correction.

It takes a long-time for me to figure out how some people have been very successful trading based on the fundamentals because it is impossible to know the exact figure of the real forecast of economic data. However after studying sometimes now i started to gain some believe in it.

Today i just want to outline certain topics that is closely related to one other in fundamental trading but i am not going to elaborate further as it will be for future discussion. So this is the summary.

• New High/New Low = Overbought/Oversold
• Support/Resistant
• Asian Zone, Euro Zone, US Zone Market Open
• Fundamental Economic Data
• Breakouts

The above topics will be discussed in details in the future for reference. It's time to balance out between technical and fundamental rather than stick to one of either side.

Breaking News - Euro breakup talks!!

The Greece financial crisis and the spiraling impact on other fellow members of the European union has led to the growing speculation of potential disintegration of the Euro currency. An estimated of 860 billion-euro debts total combined from all the European Union led by Greece is big financial dilemma that seems to have no solutions at the moment.

Based on Bloomberg report the main reason caused this problem is the uncontrolled taxes and spending among some of the European Union country members which led to mounting debts.

If the integration of Euro indeed happen this would be a historical failure of one of the greatest idea in Europe financial history. And in fact the Quote for EUR-USD that we all love the most will no longer exist in forex trading.

I just hoping that all European Union members will find out a good solution to this problem and maintain the stability of Euro. This is because EUR-USD is the most stable and highly predictable to trade in forex.

Original Article Source: Bloomberg.com

ADP Non-Farm Payroll: Pause point for EUR-USD

Strong bearish signal has pushed the EUR-USD deep to oversold position, but is it going to stop soon when the Euro Zone market open or continue going down until the US session open during the ADP non-farm payroll news release.

All technical indicators such as MACD and stochastic still showing fairly strong bearish in all major time frames (daily, weekly, monthly). Approximately 400 pips or about 400% down from the previous Monday position. This means the long-term downtrend is very much underway with minor hurdles along the way.

Using the oversold position and Indicators signal we can assume the following.

1. Oversold position = The market is looking for correction as some traders might be taking profits on this level
2. MACD & Stochastic Down = It will go further down if traders choose not to take their profits yet.

Based on MACD and Stochastic signals i have the feeling that the euro-dollar may continue to move down even when the Euro Zone market open. This is because some traders might still believe in the signals given by the indicators since it is very strong and ignore the correction hint. However during the ADP Non Farm payroll news release the market is expected to have a brief pause here. And this could be it, the point of correction will take place. So we will see what the European traders will do.!!

Greece bailout: What will happen to the EUR-USD?

 

There are hot media speculations about Greece bailout plan to help the country to restore its financial credibility. An estimated of  €110 billion Euros bailout is expected to be given to the Greece government by the help of European Union fellow members and IMF. Direct correlation of this event to the forex market movement give me a great concern, as i am trading on the bearish trend all along at the moment.

So the main concern here the impact of the financial aids to the movement of EUR-USD bearish trend. From technical analysis point of view i expected at least two possibilities that may happen when the bailout is pass to the Greece government.

1. Strong upwards movement that will defy all the indicators that helps to keep the bearish trend. That means there will be long sharp spike upward and the aftermath of this scenario either permanent or temporary. If the result is permanent Uptrend will likely to start from here or otherwise downtrend will continue.
2. If the figure of the bailout is lower than expected then there could be short sharp spike and the market will then quickly normalize to continue its downtrend direction.

This is serious and dangerous situation to be in as traders are very cautious about taking their money from the market to avoid unexpected losses. Strong market turbulence will affect the EUR-USD at some point, so be wary and keep up to dates with the financial news and economic calender.

Note: In certain occasion the market may move ahead of the event or sometimes during the event announcement itself. So nobody can really tell exactly when the big market traders will make their move. In this case i will wait for the first move and analyze indicators position to make ride along with the next move.


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My Fundamental Perspective - forex gambling

Even though i believe in the influence of fundamental factors on the market movement but i am not a keen fundamentalist practitioner when it comes to forex trading. In my opinion using the fundamental is like a gambling game. I have come to this conclusion after some of my observational experiences failed to discover consistent patterns that i can rely for over 3 years now. Perhaps the experience fundamental traders could explain more about this but i have a point to tell you why i believe it a gamble

Let's us evaluate one intriguing fundamental situations that we face everyday.

Consider a situation where you have access to the major central bank staff who is responsible for the economic data release everyday. In which the case you are always been informed ahead of others about the results of economic data that will come out on daily basis. Where as the major crowds is behind you. Since you hold the knowledge of the results, you have the ultimate confidence to open trade position based on the economic data expectation. During the release event itself the uninformed crowds are becoming anxious where some will open their trade position according to the data and some others on the opposite. In an unexpected situation suddenly there are more major crowds opening their bet against you. So you are obviously losing because the crowds are not on your side where the most money party is the winner. So think about it again even having the knowledge of the data release may not help you much in this kind of situation.

My best observation of such case is during Non-Farm payroll data release where the market moves very fast in extra-ordinary volumes within minutes or seconds. Despite ofmy long time observation still i failed to discover consistent patterns to address the exact direction of the market and occasionally losing in this special event in forex trading.

It is one of my great challenge to understanding the forex fundamental that eventually making me losing my interest of studying them to the deepest level and nearly stop in doing so nowadays. I used to ignore the news release and stay away from trading during those turbulence hours. I believe it is enough just to know the fundamental factors shake the market temporarily and use technical indicators to measure the spill over and trade the correction part.

Forex - Fundamental Factors

Even though fundamental factors are not significant to the majority of technical traders, yet it is vital to spot risky and profitable moment in forex trading. We should not ignore the random effect that create the volatility of the market even though we know that every movement is bound to certain boundary in technical perspective.

Take for example during one day of trading there are plenty of fundamental news that is going to be release during that day. And mostly they consist of high impact on the market movement. The failure to take notice of the situation ahead may drive your trading day become very unpredictable due to the random effect. One of the most riskiest fundamental data is the Non-Farm Payroll data which can rip you off 200 pips or points within seconds.

So in this case no matter no matter how much you believe in the Technical factors, but you should not ignore the fundamental part of it.

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Fundamental Analysis Dilemma

Experience traders usually rely heavily on the fundamental analysis more than technical in their daily trading. This is because they have already study for so many years about the behavior of market movement affected by each of the economic data. Despite of their overall success there are certain times they still at least incur some losses. And their only solution to cut that losses is by putting a stop loss limit so that the market will not slide away too far of the expectation.

As for the beginner forex traders please don't mess up with the economic data if you totally have no idea how it works. However I would suggest take your time to make a thorough study in order to build your own experience on the market behavior for each of the economic data such as interest rates, non farm payrolls, Gross Domestic Product (GDP), Consumer Price Index (CPI), etc. These are the unexplainable facts that you cannot find in any forex books written by any experts because they don't know the effect on the market either. This is where you have to be your own experts in forex trading.

The very problem of fundamental factors is because they are so unpredictable especially its immediate effect which can drive you crazy. Take for example during non-farm payrolls data release, some traders consider it as profitable and some others see it dangerous time of trade. The fact is no one really knows and when it happens they either could be wrong or right. No matter what figures comes out whether it is as expected or not the market still can go crazy moving at any directions i.e. ups, downs, or up and downs defying all the technical rules. As a result some traders will make huge profits in matter of seconds i.e. 200 pips or more and others may suffer great losses. Some can even profit in both direction to double their pips earning.

Now in this topic I will discuss how can we use technical advantage to solve the problems of fundamental factors dilemma. And for that reason I am not going to discuss how to make profits in both directions or straight win on the first setup but rather to identify the point of overbought/oversold positions. Furthermore I will not guarantee you will make profits because the market will be very fast moving and the likelihood for you to miss the boat is very high. In this case if you miss it just let it go.

In order to make discussion easier to understand i am going to use 4 hourly time frames which is one of the most difficult for the market to break its resistance without solid support. During non-farm payrolls data or significant economic data the market may shake vigorously without any direction. The quicker it moves the weaker the foundation of the movement. Most often it will pass the resistance level in this case 4 hourly time frames and create overbought/oversold positions. You can see this on the Bollinger Bands indicator. So this is chance for you to setup your position, but don't do it too quickly when it is still moving underway and let it go slide further away from the resistance level to create super overbought/oversold position. As it is reside far outside the B. Bands resistance lines then just setup your position.

At this point even the most powerful trader with most money including those brokers traders use to call "bucket shop" will not dare to try any further move because it is already too far from the moving average.

The market will eventually make corrections to normalize the overbought/oversold situation to the ideal position where the market supposed to be. Or in fact you may get lucky if the market make total reversal you will make good profit for the day.

I am sorry for unable to provide visual image of the non-farm payroll data because it happens less regularly at this point of time. Therefore i am unable to get the recent chart. You will find out yourself someday and check economic calender here at forexfactory