A type of financial analysis that examines the past price movements and patterns of a financial instrument in order to identify upcoming trends. Technical analysis discounts everything related to an asset with the exception of past prices. Through the use of charts and various tools and techniques, technical analysts are able to predict where an asset is heading based on this historical data. Technical analysis is typically seen as the opposite of fundamental analysis. class=glossaryLink >Technical analysis indicators are an invaluable tool for Forex

Forex, or Foreign Exchange, is a termed use to describe buying and selling of currencies in a designated market. class=glossaryLink >forex traders. They provide a great way to recognize previous trends and patterns in the marketplace and give traders the ability to accurately gauge when to enter and exit trades as well as where to place their stop losses and take profits. As even the most experienced traders can have difficulties spotting market trends on their own, technical tools provide an accessible and easy to understand way to ensure that good trading opportunities are not missed.

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Take the Guessing Game Out of Trading

For beginners who still may be apprehensive or unsure about when to open or exit a position, technical indicators provide reassurances that the decision to trade a specific financial instrument at a specific time is the right one to make. Indicators can be especially useful during times of heavy market volatility, when decisions need to be made very quickly and even a small mistake can have a significant impact on a traders portfolio.

Additionally, technical indicators greatly reduce the guessing game in forex trading. Instead of looking at a chart and estimating that a Trend

Trend refers to the general direction a financial asset is moving in, and can vary in length and durability. A strong trend can provide traders with valuable clues as to whether to open a buy or sell position. As a general rule, it is preferable to trade with the trend. class=glossaryLink >trend will reverse at such and such a point, a technical indicator can be used to determine specific points where a significant price movement could occur. Indicators help traders plan a specific course of action and strategy well in advance, thereby eliminating the split second decisions and guesswork that so often leads to an account being wiped out.

While technical indicators can be a fantastic addition to any trading strategy, it is important to remember that no strategy is correct 100% of the time. Trading properly with indicators takes practice and a fair bit of trial and error.

In this post, we will be going over some of the most commonly used technical indicators and how traders, (even beginners), can use them to increase their understanding of the market to make more secure, knowledgeable and profitable trades.

Simple Moving Average (SMA)

The Simple Moving Average is one of the most commonly used technical indicators in forex trading, and for good reason. The SMA works by averaging out the price of a financial asset over a given number of days. A line is then plotted on the chart based on these averages. Typically, shorter term SMAs (10-day, 15-day) are more applicable to short term trades, while higher ones (200 day) are more suited for long term traders looking to identify overall market trends.

What makes the SMA so useful is that it filters out random and confusing price movements and clearly shows the trend a financial asset is trading in. In the image below, notice how the SMA (the blue line) is able to plot out the overall trend of the asset while discounting price fluctuations (circled in black).

Here we see how the SMA filters out large price fluctuations