There are various kinds of techniques as well as indicators that are made used for following as well as predicting the trends in the forex market. The major aim related with the technical analysis is to identify the components of trend like price level, timings and the direction of the movement of currency trading rates. Each of these techniques has its own significance and follows its own method for finding out the various components related with the trend.
Bollinger Bands and Currency Trading Rates
This is a kind of method that is made used for finding out the volatility range of the currency in the market. These bands were devised by John Bollinger whose name is given to these bands. Bollinger bands were invented during the period of 1980s. These bands were invented basically from the trading bands. These bands can be made used for the measurement of relative height and depth of the prices of commodities. Bollinger bands are usually plotted with a distance of two standard deviations in between them. The standard deviation is actually a measurement of volatility. The Bollinger bands have the capability of adjusting to the conditions that arise in the market. The bands get expanded at the times of high volatility and it gets narrowed when the volatility is low. Bollinger bands form a popular tool in technical analysis. The indication of overbought market is done by the movement of closer prices to upper band and the oversold condition is indicated with the movement of closer prices to lower band.
Support level can be considered as lowest price with which traders perform trading during certain time period. The support level is said to be stronger when the price of a currency stays longer in the market. Support level can be represented in a chart as a price level that comes under the market at which the buying interest is strong enough for overcoming selling pressure. A stronger support level won’t be broken so easily in the market and so the currency trading rate will remain the same for longer period of time and there is less chance for a fluctuation much away from that particular rate.
Resistance level is the indication of the maximum price with which a currency can be traded in other words it is the maximum value that can be taken by currency trading rates. The price of the currencies cannot exceed the resistance level for a particular time period. We can represent resistance level on a chart as a price level where the selling pressure has the ability to overcome buying pressure.
Commodity – Channel Index
This is an oscillator that helps in indicating the oversold and overbought conditions in the market. This index was invented by a person named Donald Lambert.
This is a method that is used for the identification of continuation and reversal patterns.
This is a method that is used for indicating the direction of the trend that exists in the market.