Posts Tagged ‘technical indicators’
The Ultimate Technical Indicator!
April 12th, 2010
Download this Forex Secret Indicator just now! Discover Forex Brilliance and Steal Pips and download the powerful Trend Dash Board and the Trend Explosion System FREE! What is the best technical indicator to use in forex trading? Is it the Stochastic, the Average Directional Index (ADX), the Relative Strength Index (RSI), the Exponential Moving Averages (EMA) or the Bollinger Bands? Every day, a new technical indicator is hitting the market as technicians attempt to find the ultimate technical indicator. There are so many indicators available now!
So what is the Ultimate Technical Indicator? Well, to tell you the truth, there is one indicator that will always stand above the rest. And that indicator is the price action. You see all these technical indicators are formulas that are applied to the price action to get a trading signal.
Now in forex trading, we do not have the price in the real sense, we only have the exchange rate between the two currencies. This exchange rate is the relative price of one currency to another. For those who have been trading stocks before starting forex trading, this might be somewhat confusing in the beginning.
Now support is the price where buyers step in and start buying en masse. Think of the support as the floor. When you hit a rubber ball on the floor, it bounces back and returns to you. The price action bounces back from the support in the same way.
Resistance is the price where sellers start selling as a crowd. Think of resistance as the ceiling above you. When you throw a ball above, it hits the ceiling and returns. In the same way, when the price action hits the resistance, it bounces down.
You need to understand this that large players like the big banks, hedge funds and the institutional investors trade in a totally different manner as compared to us the small traders. As a small trader, we want to enter and exit all at once since our order size is too small.
But when a hedge fund or a large bank enters the trade, they usually have large order size. They don’t want to move the market and drive the price by too much buying or selling. So they enter the market gradually. In case of a large buyer, it might drive the price high. So instead of placing one single large order, these big players, enter the market gradually.
When the price reaches the support or the desired entry level of these big banks or hedge funds, they enter the buy order. Similarly in case of a large seller, a single order might drive the price still lower. So a large seller will always enter the market gradually. This way, you see the price bouncing back and forth between support and resistance.