Forex Technical Indicators and Oscillators
Technical indicators are inseparable part of technical analysis. They aim to predict future market movements and help a trader to be oriented in the market. There is a very large range of indicators which are used by the traders for forecasting the market. Some people prefer an indicator which is proved to work in the past; others try to experience new ones to reach success. Examples of such technical indicators are trading indicators by Bill Williams, Oscillators, Trend and Volume indicators.
The given indicators came into being by the strategy suggested by a legendary trader Bill Williams. Due to having a good understanding in the psychology of market he developed his own method of trading which is based on meanwhile using a rational approach to the analysis of the market and the irrational logic of chaos.
The name of oscillator derives from the Latin word oscillo which means “I swing”. In technical analysis oscillator is the mathematical expression of the speed of price movements over time. By their form oscillators are advanced indicators.
Basic concepts of using oscillators are the overbought and oversold conditions of market. The market is considered overbought when the price is near its upper limit, and its further improvement is unlikely. Oversold zone is characterized by such a low price, that at the given moment its further downturn is unlikely. Although the analysis and use of oscillators best of all are represented at the constant state of market, the time of trend reversal can also be determined by their help.
To identify a trend reversal it’s necessary to understand the concepts of convergence and divergence of the curve oscillator with the direction of price movements.
One of the main tools for traders while doing technical analysis in Forex market are trend indicators. This set of indicators as a result of its inertia is often used during a trending market to indicate the direction of price movement.
Most of Trend Indicators of the group are calculated from averages and smoothing the price series. While in form this type is a lagging indicator, that is, indicates the trend in the past and present, with the help of trend indicators it’s possible to avoid a lot of false signals, and predict the emergence of new trend in the market.
One of the main indicators of the market transactions is the Volume of transactions.
The Volume of finished transactions is characterized by an active involvement of participants in the market, its strength and intensity. Volume increases together with a steady uptrend when the price rises, and, hereby, decreases when the price falls. The same happens with a downtrend, the volume increases when the prices fall and decreases as the prices rise. One of the main features of Volume is that it is always a little ahead of price. In forex market, as a rule, there is no way of showing the direct volume of transactions, that’s why an indicator called "Volume", is constructed, which reflects the number of price changes (ticks) during one bar. This indicator shows the activity of price changes and it is believed that this activity well correlates with real volume of transactions.