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Popular chart indicators, How to use MACD indicator, Parabolic SAR, Stochastic indicator, RSI, ADX and Ichimoku chart?

Popular chart indicators, How to use MACD indicator, Parabolic SAR, Stochastic indicator, RSI, ADX and Ichimoku chart?

Bollinger bands are an advanced market analysis tool developed by John Bollinger. These bands are used to measure the volatility of a market, and it traces the state of the market too. For instance, when the market is active, the band expands, and when the market is quiet, it contracts.

Formula for calculating the Bollinger Bands:

  • Upper Band = Middle band + 2 Standard deviation
  • Middle Band = 20 – moving average
  • Lower Band = Middle Band – 2 Standard deviation

Using these calculations, several traders have excelled and credit Bollinger bands for the success of their trade.

Bollinger Bands: An Overview

Popular chart indicators,The bands include price movement of the stocks. It indicates the various degrees of highs and lows in market prices. The movement of the price to the middle of the band is called “Bollinger Bounce.” They act like resistance level or dynamic support. For instance, if you are in a longer time frame, these bands will be stronger. And when the bands squeeze in together, they are called “Bollinger Squeeze.” With the candles of the bands going up and down, the prices fluctuate respectively.

Several traders have developed systems that get premised on these bands, and it is most suitably applied when the market goes through fluctuation, and there is no particular trend. Bollinger bands effectively measure the stock swings from high point to low point to map the volatility of the market. A standard error that many novices commit is to sell and purchase when the prices are highest or lowest; however, it is a point to note that most money gets made between these extreme points.

Above all, you can use Bollinger bands for trade in any global market. It works equally well with equities, forex, options, and futures.

How to Use the MACD Indicator?

MACD stands for Moving Average Convergence Divergence. The purpose that the MACD serves is to find out the proceeding averages that reflect a new trend. It becomes important to identify the trend as most money is made by it.

The MACD chart shows three numbers: faster-moving average, slower moving average, the difference between faster and slower moving averages. As the faster moving average moves away or diverges from the slower moving average, the ‘divergence’ is caused. And, as the two moves towards each other the ‘convergence’ is caused. The two moving averages have different speeds and hence, the faster one responds quickly to a price movement as compared to the slow one. When this divergence takes place, a new trend is traced.

The two most essential MACD signals that needs to be explored are:

1) When MACD line crosses 0: This condition is caused when two moving averages are moving over each other. In this process, they tend to cross 0, it is said to be in one line. This condition depicts that momentum is changing and a new trend is created.

2) When MACD is in signal line: Here the two MAs move away from each other which in turn increase the momentum. While coming together of the two lines demonstrate that the trend is losing its strength. The MACD becomes very handy in creating objectivity in trading. It also proves to be a great tool in building confluence. The correct usage and proper understanding of MACD will help you trace the rising trend at the right hour.

How to Use Parabolic SAR?

Trends are how the forex market works, and it is essential to understand them. As important it is tounderstand where a trend begins to help jump on the bandwagon, it is also crucial to understand where it ends to exit the deal and seal your profit. One way to identify where is the trend ends is to study the parabolic SAR. The SAR stands for nothing but Stop And Reversal. In a parabolic SAR, points are plotted on a chart where potential reversals can be identified. The best part of using the parabolic SAR is that it is one of the simplest ways to study and follow. The dots plotted on the graph are either above or below the current price depending on the trend. Here, if the dots are below the price, it a sign that you should buy this trade right now to earn a profit. If the dots are above the current price, it will be wise to exit your trade with whatever profit you have made so far.

This method is not exactly usable when the market is ranging, but if you see long rallies and a trend forming, this tool can be used to fill your pockets. With the parabolic SAR tool, you can also decide if you want to short a trade or long it. If the dots are below, you need to long it while if the dots are above the current price, it is best to short the currency pair to earn a bucket load.

How to Use the Stochastic Indicator

Finding out where a trend ends is crucial in the market. Stochastic oscillator is one indicatory which can help you determine this. The theory that this indicatory follows is:

A. When a trade is in an uptrend, the price goes up or stays the same than the previous closing price.
B. When a trade is in a downtrend, the price goes down or stays the same as the previous closing price.

This indicator uses the degree of the changes between two consecutive closing prices to understand if the trend will be upheld or reversed. The stochastic indicator rates a deal between 0 to 100 depending on how the market is oversold or overbought by the trading community. If the score is above 80, it means that the trade is highly overbought and it is not wise to open a new trade. On the other hand, if the score is below 20, it means that the trade is well undersold and buying it would mean high profits. This is again based on the thumb rule of the market where overbought trades crash and oversold trades surge. A reversal in trend is bound whenever there is either overbuying or overselling due to any reason in the market.

The primary purpose of the stochastic oscillator is to show if the trade is oversold or overbought and help you predict the future trend of the trade to help you trade. This indicator can be fit snuggly into your trading techniques to realize massive profits.

How to Use RSI (Relative Strength Index)?

How to Use RSI (Relative Strength Index)?RSI aka Relative Strength Index is a favorite FX indicator, which is used to analyze the strength  of the ongoing market. Designed by J Welles Wilder, RSI is quite similar to the stochastic indicator as it determines the oversold and overbought FX market conditions. The index scales the current trend on a scale from 1-100, where a reading above 70 or more signs oversold conditions. On the other hand, a reading of 30 or less signals an overbought condition created at the FX market. Traders believe that an oversold condition of the currency pairs can reverse the down, falling trend and prefers buying. Similarly, an overbought condition is predicted as a selling environment.

Adding to the same, RSI is also considered to evaluate the centerline crossovers. In this, a momentum from below the centerline to 50 signals a rising trend and a movement from above to centerline is considered as a falling trend. RSI, being an indicator is used for picking up the potential ups and downs, according to the respective oversold and overbought conditions present at FX.

The usage technique of this indicator is quite similar to that of the stochastic indicator. For traders who are willing to trade at an uptrend, is advised to wait till RSI crosses the scale of 50 and for FX traders who want to confirm the downtrend can look-over for RSI to fall below 50. This indicator helps in altering the fake out from the trading platform which if not taken care of can cause substantial losses.

How to Use ADX (Average Directional Index)?

ADX stands for Average Directional Index, and it is a kind of oscillator which provides useful information about the Forex market. This ADX fluctuates between the values of 0 and 100, when market reading goes above 50 it signifies a strong trend, and reading below 20 means a weaker trend. This is an oscillator which does not reveal whether the ongoing trend is bullish or bearish; it alerts the trader about the strength of the market. This is the reason why traders prefer to use ADX to identify the nature of the market, whether it is ranging or initiating a new trend. Length of the ADX depends upon the strength of the running trend. It does not matter whether it is a downtrend or uptrend.

A trader can use ADX in various ways, and some prefer to use the oscillator as an indicator. It is used to confirm whether the current currency pair is profitable to be used in an ongoing trend or not. Another favorite way of trading with ADX is by combining it with another indicator, preferably with the one which reveals whether the pattern is going towards upside or at downward. ADX also helps in identifying whether a model can be closed early or not. This ADX is a useful oscillator which allows a trader to understand the strength insights of an ongoing trend at the FX market. It helps to identify where the market will get diverted towards a profitable notch or is trotting towards a sharp downfall.

Ichimoku Kinko Hyo

Ichimoku Kinko Hyo (IKH), is a kind of Forex market indicator which gauges the future price motions and predicts the next areas of resistance and support. Ichimoku Kinko Hyo is a Japanese name which means, a glance at a chart in equilibrium. An IKH consist of various like and each of them has a significant meaning, let’s find out about them.

Kijun Sen – This is the baseline, which gets calculated by taking an average of the lowest low and the highest high. It is estimated for the last 26 period and generally represented by blue color. In FX trading, Kijun Sen indicates towards the futuristic price movements.

Tenkan Sen – Considered as the turning line, it is taken out by averaging the lowest low and highest high of last nine periods. Mostly represented by red colour, it talks about the FX market trend.

Chikou Span – Known as the lagging line, it is today’s closing price which has been plotted 26 periods behindhand, generally of green colour. When this line crosses price from a top-down signal, it’s a sell signal whereas a bottom-up means a buy signal.

Senkou Span – These are the drawn by taking an average of Tenkan Sen and Kijun Sen and gets plotted 26 periods ahead. Senkon is represented in orange colour. Intrading, these Senkon lines show the support level by their peak values and resistance by low ones. This is a very versatile Forex indicator which provides insights regarding resistance-support levels, oscillators and crossovers all in one chart. IKH is mostly used when Japanese Yen is being used in currency pair.

Trading with Multiple Chart Indicators

How to Use RSI (Relative Strength Index)?Forex trading cannot be done by taking just one indicator in your hands. To get the upper hand in Forex trading, always use multiple tools, whether it is trading charts or indicators. We have discussed a few of the standard and popular chart indicators, and each one of them has their drawbacks. Thus a smart trader should use multiple symbols to screen out the faults and get most trusted forecasts.

Let’s discuss a few of the common pairs, used commonly in FX trading. Stochastic and Bollinger Charts- This pair uses its volatility measurements along the oversold and overbought areas to get a perfect prediction for future values.

RSI (Relative Strength Index) and MACD (Moving Average Convergence Divergence) Charts- Both of these indicators when it reflects the same signs, it weighs the probability with high-profit factors. For example, if RSI is in overbought signal and MACD is in a downtrend, it means that selling at this time will be beneficial.

Various combinations can be designed by using these indicators, and it solely depends on traders and their preferences, some would like to combine RSI with MACD while others will want to trade with Stochastic and MACD. It is suggested to study all of these indicators vigorously first and then only use them for trading.

Forex is a dynamic market place where many factors need to be examined and look upon before coming to a conclusion and taking a decision. Trading at FX can become easy when done by using the combinations of these indicators.

What is the Best Technical Indicator in Forex?

Technical indicators are the mathematical calculations, which reflects and predicts the upcoming FX future. These indicators direct after evaluating the attributes like a historical FX price and volume. There are various indicators available, which traders use to oversee and presume the upcoming weather at Forex land. Few of the most common yet popular ones are –

MACD (Moving Average Convergence Divergence) – This indicator gauges momentum, and it performs predicting calculation concerning EMA (Exponential Moving Average). It is calculated by removing the EMA of 24 days from EMA of 12 days.

Bollinger Band – It is a kind of volatility channel used to identify the future FX scenarios, and it’s most common values are 2 or 2.5. Its primary parameter is the number of days of the moving average.

RIS (Relative Strength Index) – This indicator observes the pace and changes in movements of price. The gauge fluctuates between the value of 0 and 100. The key attributes of this indicator are current and historical strength and weakness.

Ichimoku Kinko Hyo – It is one of the versatile FX indicators whose calculation is based on resistance and support, along with the historic-current events for assuming the trend direction. There are many other Forex indicators which calculate thoroughly and predicts the future of FX market accurately. The answer to the given question is each one of the FX indicators is best in its domain. All FX indicators required to be used with some other tools to forecast a nearly true future. Talking about versatility, Ichimoku Kinko Hyo gets listed among the most common yet
best technical indicator, though it too needs the assistance of other tools.

Conclusion: Popular Chart Indicators

The forex market has various indicators which forecast the upcoming trend and market scenario which FX. Each one of these indicators has a specific calculation method and charts. Let’s take an insight into a few of these charts –

Bollinger Bands – These bands are used to measure the volatility in the FX market; there acting module reflects minor resistance and support levels. The Bollinger charts have values which are termed as ‘Bollinger Bounce,’ a strategy which says the price will come back to the center of Bollinger band. ‘Bollinger Squeeze’ is another one who evaluates the early breakouts.

MACD (Moving Average Convergence Divergence) – This is an indicator which catches early trends and also helps in finding spot trend reversals. The chart contains two moving averages, first as fast and second one as slow. The vertical distance between these two averages is measured through a histogram.

Parabolic SAR – Designed to focus on reversals of spot trend, its full form is Parabolic Stop and Reversal. Considered as one of the most straightforward indicators, SAR only reflects the bullish and bearish signals from the FX market. It is a kind of oscillator too.

RSI (Relative Strength Signal) – This indicator reflects the oversold and overbought conditions present in the FX market. It is one of the Forex oscillators which forecasts the trading patterns and scenarios.

IKH (Ichimoku Kinko Hyo) – It is one of the versatile FX indicators which gauges the future or upcoming price momentum and also reveals the future support and resistance areas. FX traders frequently use it.

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