Advanced Forex Analysis

advanced forex analysisAt one time, advanced Forex analysis was the subject that caused the eyes of many traders to glaze over. It is true that at one time, advanced technical analysis required advanced skills in complex mathematics.

Modern trading platforms have automated advanced Forex analysis to the point where it can be used by those of us that feel that balancing a cheque book or managing the household budget are sufficient challenges to our math skills.

Here is a brief look at some of the indicators and oscillators that fall under the category of advanced Forex analysis and how they might be utilized to gain an edge when trading Forex. One of the most interesting of these is the Fibonacci indicator.

It got its name from the work of a renaissance Italian mathematician rediscovered some ancient Greek mathematical ratios that appear throughout nature in such relationships as the length of the human hand compared to the arm, or the length of tree branches compared to the trunk.

Using the Fibonacci indicator to forecast currency pair prices is fairly simple and straightforward. The trader simply selects a high or a low on a price chart, and then draws a line to the next significant high or low opposite from the one chosen from which to start the analysis.

Modern trading software will then automatically insert lines of support and resistance that correspond to the relationships defined by the Fibonacci formula. These lines will occur at five intervals between the selected high and low prices. The theory behind the indicator is that when prices touch one of the five lines, they tend to reverse.

Another advanced technical indicator is called Bollinger bands. This indicator features a moving average line that runs through the center of prices on a chart for any trader-selected time period. The indicator then forms a line above and below the moving average that is drawn according to a trader selected value. Most trading platforms draw this upper and lower band by default at two standard deviations above and below the moving average.

The visual effect of Bollinger bands on a price chart closely resembles a river with the upper and lower bands depicting the riverbanks and the center band representing the river’s current. The value of this indicator is that for the majority of the time, Forex prices tend to remain contained within the upper and lower bands, much as a river tends to stay within its banks. The simple strategy to employing this indicator is to sell a currency pair when it touches the upper band and buy it when it touches the lower band.

The important thing to remember with these two advanced technical indicators is that all computer screen traders will receive identical information. It takes experience and practice to accurately determine when to trust the Fibonacci or Bollinger band indicators and when to trade against what the indicators are telling you. No indicator is perfect. If it was, there would be no losing traders and therefore, no Forex market.

 

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