It is essential to understand how Forex works, to know the basics, to learn the strategies to earn money on the foreign exchange market. The world of online trading in recent years has evolved a lot, particularly affecting Forex which is currently in a great phase of growth, thanks to an increasingly complete offer from international brokers.
Forex (FOReign Exchange market) is the largest financial market in the world. Thanks to the high liquidity, guaranteed 24 hours a day, five days a week, is the market most the existing liquid, reaching a value of approximately $ 4,000 billion per day of transactions.
Brokers always have a bid and offer price and all transactions can be executed immediately. In Italy it is possible to operate from 11 p.m. on Sundays until 11 p.m. on the following Fridays.
The trend in forex is the direction in which the chart of a currency pair's quotes moves. In an upward trend, if there are maximum and minimum increasing price variations, it means that they are definitely higher than the previous ones. To have a negative inversion prices will have to draw a lower maximum and minimum than the previous ones.
This is the development of the prices of a currency pair (e.g. Euro/Dollar) over a period of time. The most important thing for traders is to analyse and use the graphs to identify the trend over both the medium and long term. Through this careful analysis you will understand if you should buy or sell a currency pair.
You need to build a good trading strategy and carry out a complete analysis of the technical framework present on a given currency cross. This must be done:
Perform a candle analysis ((candlestick analysis) that make up the graph in order to identify any configurations of continuation or inversion.
Very important to determine the trend is also an analysis of the oscillators with which you operate (for example RSI or Stochastic), as well as the analysis of two moving averages, a short-term (5/8 periods) and a medium-term (14/20 periods), just as important is the analysis of the waves Elliott, in order to identify in which wave / underwater the market is located.
For each graph taken into consideration, these five analyses must be carried out, starting with a long-term one and then moving on to the medium term and, finally, to the short term. The latter is the most important chart as it provides the most precise indications for daily trading.
To build a successful trading strategy on Forex you need a three-step analysis:
We have a downward trend if the price has decreasing maximum and minimum, i.e. the maximum and minimum, are lower than the previous ones. A positive trend reversal occurs when prices draw a higher and a higher minimum than those already touched.
We have a lateral trend when the price moves almost horizontally without a defined direction.
In this situation the indicators do not work, and it is not recommended to enter the market.
Trend detection is critical in technical analysis for forex. Without precise direction it is almost pointless to buy or sell. This is the essential basis for the technical analysis. A trend is considered intact as long as it does not give clear signs of exhaustion. However, the breaking of a trendline does not automatically indicate its reversal: a lateral consolidation phase may begin.
It becomes fundamental (to define strategies and operations) to understand if the market is in a bullish, bearish or lateral phase. If the market is in a positive trend the best strategy is to ride the bullish trend with long positions. If the market is in a phase of lateral congestion the strategy is to buy when prices go down to the lower end and then liquidate when prices go down to the lower end.
For Dow's first principle, the trend consists of three trends:
The parallel to the trendline is commonly called the channel line: with the first it forms a channel useful to contain the price movement. It represents a dynamic resistance in a bullish trend and a dynamic support in a bearish trend; its eventual breakage illustrates a signal of acceleration as far as the dominant trend is concerned.
To identify the trend there is a basic graphical tool for technical analysis, trendline or lateral line. It is represented graphically by an oblique line connecting the maximum and minimum.
Its reliability and the higher its contact points are, the greater. Tracing a trendline is as simple as tracing two points of contact, but if there are three points, the reliability is greater. It is called bullish, one that joins rising minimums. It is called bearish, one that joins decreasing maximums.
Instead, to recognize a side market we can draw a horizontal line that in this case is called support or resistance. It shall be drawn up as either a minimum or a maximum. Support and resistance are also called static support and static resistance, while trendlines are called dynamic support or resistance because they already outline an existing trend. If the support or resistance is broken a breakout will form and in this case it is advisable to invest in the direction of price.
When the breakout occurs, a role exchange takes place, i.e. the support turns into resistance and the resistance into support. In a side market the price bounces between these two lines and when contact points are formed it is rejected by bouncing, because it does not have the strength to break the lines as there is not much volatility. Indeed, the market is also said to be going through a period of congestion.
Supports and resistances, however, identify the areas where there is a balance between supply and demand: the demand line identifies the strength of sellers while, conversely, the demand line illustrates the strength of buyers. The rules to follow when drawing similar lines:
One way to trade in a side market is to invest down when the price touches resistance and instead when the price touches support invests upward. But as I said before any indicator at this stage never reliable results, therefore, the best advice would be to invest in the direction of the trend and never against the trend or in the side market.
We assume that any investment made in this area must avoid improvisation. Having said that, we are pleased to confirm that there are some rather reliable technical indicators that we could rely on to try to make the most of any advantages that we "find" (analyzing in the best possible way the directions that global investment volumes take). Forex trend is therefore part of these identifiers, which are therefore the basis of our possible strategies (such as position trading).
All this forecasting system is based on the concept, certainly not true in an objective way but still semi-reliable, that in the future "situations" that have already occurred in the past can be repeated; the clue to try to make predictions on the trend of cross-currency currencies.
We come to the tangle of the skein. Let's take a deeper look at the theoretical concepts that we have introduced so far, stating that, in this case:
They form price channels within which our quotations remain anchored for a particularly long period.
Alternatively, we can study the trends of our reference sector taking as a point of reference the time in which it develops. We could therefore speak of the short, medium and long term with reference to the time cycle that we are analysing. In the same way, we could analyse the development of prices from a weekly or monthly perspective. All of this could, of course, help us to anticipate any darker times, to safeguard our investments as well as possible.
Clearly, it is easier to carry out transactions that appear to be successful when the trend is more stable (upwards or downwards) over time. That's why we recommend to all those who enter this financial market for the first time to focus more on the analysis of daily trends, concentrating their strategies in this sense.
As far as the numbers of Fibonacci Strings are concerned, we have already spoken about them, indicating how they are able to create a graph with a very precise scheme that indicates the levels of possible tracing. Another tool we can rely on to have more or less reliable indications are the bollinger bands: they are a tool for analyzing the volatility of crosses, which offer operational forex signals when prices split the external bands up or down.
It is certainly up to you to find the right correlations between these winning tools, making the most of them for your economic advantages.
As you will certainly have understood, it is not our intention to provide techniques or strategies that can present themselves as objectively winning. What we are doing is trying to introduce you to a world that, to be fully understood, requires a lot of "analytical study" of concrete cases. The most important thing, therefore, is the continuous training; do not hesitate to comment on the article and share it, if you liked it and if you found it of your interest.
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Parabolic Stop and Reversal (Sar) refers to a trading system based on price and time. In the graphic aspect, it is represented by a succession of points above or below the prices, takes its name from the parabolic form that outlines in the graph. The succession of points of the Sar in the chart if it is built below prices means that it is in bullish trend, on the contrary if it is built above it is in bearish trend.
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