Forex indicator: Moving Average (MA)

Moving Average(MA) is one of the most popular indicators. There are several types of moving average such as Simple Moving Average (SMA or MA only), Exponential Moving Average (EMA), and weighted Moving Average (WM A). MA is basically an average closing market price for one time frame that has been set. MA is just like a ruler which will move up or down according to the market direction.

It is an average closing price movement in a period of time. With MA, we can see the trend of the price. If it's moving to the top it simply means that the trends are growing up and vice versa. When prices penetrate MA mean trend is changing.



Below is an example of 100MA and 50MA. All calculation will be made by a computer program. One of the main functions of MA is to recognize the trend. MA is a kind of indicator of "lagging”. It moves according to the price and not a proactive motion prediction which means it does not predict anything but only clarify the trend whether uptrend or downtrend.



"Momentum" or the strength of trend can be changed by using smaller MA. The smaller average values of MA the stronger its momentum. MA that is less than 20 days may be classified into short-term, 20-100 to be medium-term and above 100 to be long term trend.

Traders often use more than 1 MA to see the movement of market as a whole, in terms of short, mid and long term MA may also be used for the "level" that can be considered as a support and resistance.

Note the example below. MA (200 days) acts as a powerful support line. Price will rise again when approaching this line. This opportunity should be taken by entry the LONG / BUY position.



In other ways, MA also can act as a barrier (resistance) if the price falls below MA line. Another function of MA is to set our SL value. The characteristic of MA that can be support or resistance can be the "tool" that we can use to minimize our risk during our trade. Note the example below:



In this example, we assume MA200 as support and has a long open position. By knowing that, we can set our SL under this support line.

One of the disadvantages of MA is that it cannot be used when the market is in correction phase or the "Consolidation”. Examples below indicate the disadvantages of MA when the market is not in trend; uptrend or downtrend.



Be careful with the "lag" of MA. Because all of the MA indicators are lagging, the signal provided by the MA is often slow even though the market has made its movement. This phenomenon often occurs when using MA.

Crossover is one of the principle when using MA;when the market moves from the top to the down of MA, or vise versa.



Another method of “crossover" is using more than 1 MA. This type of "Crossover" is valid when "shortterm" MA across above "longterm" MA.

This method is use to identify the "momentum" or the strength of the market movement. Long signal generated when the shortterm MA cross above long term MA while short signal generated when shortterm MA cross below longterm MA.

Example below shows the signal to entry position LONG result of crossover




"Triple crossover" is a way of using 3 types of MA all together. For example MA5, MA10 and MA20 cross between one another. By adding more MA, the false signals may be reduced.

Example of buy signal:



When MA5 cross with the MA10 and ascended to the top, this shows the buy signal was created. However, traders may wait until MA10 and MA20 cross once again and rise to the top. The crossing between MA10 with MA20 can be used to confirm the buy signal generated by initial signal of the MA5 and MA10.

Introduction to Technical Analysis

Technical Analysis is one way to analyze the market price and to predict the trend by comparing the on going pattern trend with the passed pattern trend.

According to technical analysis, market seemingly has a retention or "memory" and often followed the trend of casual. For example, if the price once reaches a certain stage, at one point and then the price fall, most likely it will occur again in the future at the same point. We recognize this point as resistance.

Two major components in the technical analysis are the chart and indicator (instructions). This indicator acts with a painting style based on the above chart analyses that have been programmed. There are two types of indicators which is leading indicator (precede) and lagging indicators (trail / slow):

• Leading Indicators consist of CCI, Relative Strength Index (RSI) and Stochastic. It can predict market price for oversold good and overbought purchase. Examples of leading indicator: RSI-measure percentage of sell / buy by overbought if RSI> 80 and oversold if the RSI <20.>

• Lagging Indicators consist of MA (Moving Average) and one of the most popular indicators. It is use to describe the trend if the price passed one curve MA. The popular settings of MA is like; 5EMA, 20EMA, 100EMA, 200SMA, 60SMA, 50EMA and many more.

#1 Types of Candlestick

Candlestick is the pattern used in the forex chart. It was first introduced by Japan country over 100 years ago where it has been used to analyze the rice market. Nowadays it has been widely used even to analyze forex market. 

By using this technique we can understand the circumstances of forex market.By looking at Candlestick patterns we can predict the early signs of market direction whether it is reversal or inversion.

Here are some important Candlestick patterns and tips that trader has to know:

1. Morubozu

2. Spinning Tops

3. Doji

4. Hammer & Hanging Man

5. Shooting Star/Evening Star

Morubozu

Marubozu bar is full body with no shadow. Usually predict the initial indications that the trend will continuously occur.

Spinning tops

Spinning tops occurs when the body is shorter than the shadow in the midst. Shorter body shows a little price movement occurs from open to close, while shadow shows the currency’s price moving up and down during the session. Usually when spinning tops occurs after a long bar, it had the potential that the changes of trend will occur.

Hammer and Hanging Man

Hammer and Hanging Man can also be an indicator of direction trend reversal as shown in the picture below, this indicator also should be ascertained with bar going after it. Hammer and Hanging Man occur when shadow is longer than body.

Doji

Doji occurs when open price is same with close price so that the body only shows a line.

Shooting Star/Evening Star

#4 Forex Currencies

Currency nickname

Sometime in the news reports issued by forex agencies news,currencies also recognized with numerous fictitious name or nickname. Do not surprised when you read news and you will found greenback, cable, kiwi, aussie, and so forth as a currency name. That is just as fictitious name or nickname only. Here is part of the nickname for some currencies:

• USD = greenback  

• EUR = euro

• GBP = cable           

• CHF = franc

• AUD = aussie 

• NZD = kiwi

Major vs. Minor Forex Currencies

There are 7 main forex currencies(major currency) that often been trade by trader that is USD, GBP, EUR, CHF, JPY, AUD & CAD while NZD & SGD are minor currencies which did not become merchants or favorite by many traders.

World currencies rate

The characteristics and the nature of forex currencies

Each currency has their own characteristic and it is important to know for trader. The characteristics and the nature of each currency is often basis on the trade policies of one country or state.

GBP: Intercommunion trade or business friendly. Any news regarding the development of the economy such as the positive Expenditure Index value wills strong GBP.

CHF:  Safe and stable currency

EUR: Anti -USD, European Central Bank is very hesitant firmness about USD currency because European economy depends almost entirely to the exports. 

JPY: In the process of reducing inflation; often deliberately weakened for strengthen industrial exports.

AUD: Sensitive to the price of gold.

NZD: Currency movement mostly follows AUD because New Zealand economy depends to the Australian economy.

CAD: Sensitive to the world price of crude oil

#3 Differences between Forex market and stock

Forex Trading is far better when compare to proportionate share. This is based on several factors below:

1) There is no commission charge to the traders.

2) Transaction Cost is low.

3) Market liquidity is very high. With only one click you can earn its profit.

4) Leverage is very high with a small capital.

5) No Insider,false news and fraud syndicate as often occur in the stock market.

6) Commodity Market opens 24 hours everyday throughout the week.


The other difference between forex market and a stock is that forex market operates globally and can include any and every country of the world; stock markets on the other hand operate in shares and businesses which belong to a specific country. The forex market covered nearly every country of the world.

#2 Basic introduction to Forex

Forex is one of the world largest instruments of investment with total trading nearly 3.2 trillion USD daily. It is far exceed any stock exchanges of the world. Unlike stocks and futures exchange, Forex is certainly an interbank, over-the-counter (OTC) market which means there is no single universal exchange for exact currency pair. The foreign exchange market open 24 hours everyday throughout the week between banks with banks, individuals with Forex brokers, and lastly brokers with banks.

Again unlike stoke exchange, Forex commodity is a 2 way market which means you can make the profit by bull(buying)or bear(selling) the currency pairs by following the movement of the currency. The Forex’s profit potential comes from the changes in the currency exchange market. By knowing the trend of the currency movement with some extra skill and knowledge (fundamental and technical analysis) one can easily be able to make a huge profit from Forex.

Did you know what is leverage in Forex ? Leverage is one of Forex advantages. Basically it is the ratio of investment to actual value. Using $100 to entry trading contract with a $10,000 at a 1:100 ratio. The $100 is all you risk, but the profits you can gains may be many times greater than what you are expected.

The risk in Forex- Experts always say when you are in market make sure to use only 10 percent of your capital (equity).The trader also must be familiar with term ‘margin’.Margin mean you cannot lost more than your initial investment. Of course
your gains are unlimited but you will never lose more than your initial investment. So be advised to never risk more than you can afford to lose.

#1 History of Forex(Foreign Exchange)

Forex come from word Foreign exchange. For simplicity Foreign currencies are define as currencies that constantly and at the same time bought and sold across local and global markets. Furthermore traders’ investments increase or decrease in value based upon currency movements.

Before World War I, nearly all central banks supported their currencies with convertibility to gold. Although paper money could always be prefer to be change for gold, in some cases this did not happen often, fostering the sometimes ruinous notion that there was not essentially a need for full cover in the central reserves of the government.

Before 1996,Forex market is open only to experts exclusive, including bank institution, High Net Worth Individual and Conglomerates multi millionaire because to entry the market one individual need about 10 million USD, because of that Forex is not very popular among Low Investment’s individual for that time because of high capital funding. Daily amount of a commodity is also under 500 million USD.

In early of 1996 ,Forex is open to public after been passed by the President of America, Bill Clinton at that time. Since that, many broker Forex registered and the amount of merchandise increase every year. Now, approximately 2.5 trillion USD was trade daily.

Now, the number of broker registered keep increasing daily and because of the competition between them the minima capital to entry trading become smaller and smaller. There are some broker even offer 1 USD as a minima capital to entry trading nowadays.