Best Forex Trading Technical Analysis Tools You Should Know of
If you want to be successful in foreign exchange trading, you need to possess a comprehensive idea of the technical analysis tools. They will help you gather insight into market psychology and also understand the supply and demand of securities. In short, technical indicators will help you act on price action movement, analyze trends, predict volatility, and so on. In this article, we are going to have a look at some of the top technical analysis tools for FX trading that are important in 2022.
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List of Technical Analysis Tools for 2022
With any further ado, let’s talk about the technical analysis tools you must keep in your toolkit in 2022.
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The on-balance volume or the OBV indicator is pretty common among forex traders. It shows whether there is a positive or a negative flow in the volume of the security over a certain period of time. When you find that the OBV is on the higher side and is increasing, it means that the buyers in the market are in the mood to buy more and are thus pushing the price of the securities higher up. Similarly, when the OBV is decreasing, the selling volume in the market is much more than the buying volume, which is reflected in the low prices. If a trader depends on OBV while trading, they must also look at divergence; this is a condition when the price and the indicator are going in two different directions. So, when the OBV is falling, but at the same time the price of the securities is rising, which is unlike what should be happening, it means that there are no strong buyers in the market to back up the trend and thus a reversal might happen soon.
This indicator might appear complex at first, but it is much simpler than it seems. As you might have understood from the name, this is a Japanese indicator. Its purpose is to show the present trends in the market, indicate to the traders when a reversal is more likely, and display support and resistance levels.
Once you have learned the basics of forex trading, it is crucial that you know about oscillators. They will teach you about momentum. Oscillators move higher when the price moves higher and vice-versa. If the oscillators have reached a maximum level, it means that it is almost time for the price to undergo a reversal. But remember, it would not be wise to call it a top or bottom level just because the oscillator is showing oversold or overbought conditions. There may be a situation where the oscillators remain in the extremes for an extended period. In that case, you will have to wait for some other valid signal before you can make your trade.
RSI, or the Relative Strength Index, is another important concept that every forex trader must know. A very important portion of its formula revolves around the ratio between the mean gain and the mean loss over the time period of 14 periods. The value of the RSI is always between 0 and 100. If the value goes beyond 70, then the market is considered to be in an overbought condition. On the other hand, if the value is below 30, then the market is said to be in an oversold condition.
This is another type of indicator which is mainly used to figure out whether a particular security is in trend. It will tell you whether the price of the security is hitting any new lows or highs. The Aroon indicator is also handy when you are trying to predict whether a new trend is about to begin. This indicator has two lines – an Aroon-down line and an Aroon-up line. You can understand that a possible trend change is about to happen if the Aroon-up line crosses the Aroon-down line.
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Every forex trader wants to determine the momentum of an asset and then make a trade in a way that they can profit from it. The technical analysis tools mentioned in this article will help you do just that. They can be pretty handy, especially for people who are starting out.