Forex market is done around the world and different currencies of country are used for trading. It remains open 24 hours a day, five days a week. It remains closed on some holidays. Some currency pairs that used for trading are USD/CAD, EUR/USD, or USD/JPY. Country's currencies is exchange from one country to another. In forex market, 'lots' are used for currency trading. A micro lot is 1,000 units of a given currency, a mini lot is 10,000, and a standard lot is 100,000
There are three types of analysis:-
It is used to analyze the changes in the forex market by monitoring figures, such as interest rates, unemployment rates, gross domestic product (GDP), etc.
It is used to study the price movements, entry and exit points, stop loss, chart patterns, momentum indicators, support and resistance. It is used to forecast the trend of the market. Following are the indicators that are used for the technical analysis of forex data.
There are two types of indicators:
1. Moving Average :- It is an indicator used to represent the average closing price of the market over a specified period of time. It is used to determine the support and resistance level, direction of the trend and tells about the crossover.
Types of Moving Averages :
Simple Moving Average (SMA) :- It is calculated by adding recent prices and then dividing that figure by the number of time periods in the calculation average. SMA assigns equal weights to all values. Short-term averages respond quickly to changes in the price, while long-term averages are slower.
Exponential Moving Average (EMA):- EMA gives higher weights to recent prices and they are more responsive to the latest price change.
2. Moving Average Convergence Divergence (MACD) :-
It is used to decide when to enter and exit the market. When MACD falls below the signal line, it gives a bearish signal that indicates that it may be time to sell. When MACD rises above the signal line, it gives a bullish signal that indicates it may be time to buy.
Formula for MACD :-
MACD = 12Period EMA - 26Period EMA
Signal = 9EMA of MACD line
Histogram = MACD - Signal
3. Bollinger Band :- It is used to measure the volatility and identify the overbought or oversold condition. This indicator only reacts after the price moves. Bollinger bands have upper band, middle band and lower band. The bands can act as a leading indicator beacuse they help to identify the areas where the price get reversed. Bollinger Bands use two parameters are Period and Standard Deviations. the default value is 20 for periods and 2 for standard deviations.
Formula for Bollinger band:-
Middle Band = 20day Simple Moving Average(SMA)
Upper Band = 20day SMA + (20 day Standard Deviation of close price * 2)
Lower Band = Moving Average - (20 day Standard Deviation * 2)
4. Pivot Points :- It is used to determine the market trends, entry, exit and stop-loss prices. It is used to identify the two support levels and two resistance levels. Pivot points use data of a single day trading and it is one of the most accurate indicator.
Formula for Pivot Points :-
P = (High+Low+Close)/3 R1 = (P2)-Low S1 = (P2)-High R2 = P+(High-Low) S2 = P-(High-Low)
1. Relative Strength Index (RSI) :- It tells about the bullish and bearish trend and measures the price overbought and oversold conditions. When RSI is above 70%, it is considered to be overbought condition and when RSI is below 30%, it is considered to be oversold condition.
Formula for RSI :-
RSI = 100-[100/(1+(Average of Upward Price Change/Average of Downward Price Change))]
2. Rate of Change (ROC) :- It is plotted against 0-level midpoint. It is an oscillator that fluctuates above and below the zero line as the ROC moves from positive to negative. This indicator is used to spot the divergences, overbought and oversold conditions, and centerline crossovers. When ROC rise above 0, it gives uptrend while ROC falling below gives downtrend.
Formula for ROC :-
ROC = Recent Price/Price 'n' Days Ago
3. Stochastic Oscillator :- It determines the overbought and oversold conditions. When stochastic oscillator is above 80, it represents overbought condition and below 20, it represents oversold condition. The indicator changes direction before the price does and knows as leading indicator.
Formula for Stochastic Oscillator :
%K = (Last Close - Lowest Low)/(Highest High - Lowest Low)
%D = SMA of %K
It is used to help the traders to understand and act on price behavior. It is used to define whether the market is bullish or bearish
I have given an overview of forex market and how the analysis has done. There are three analysis fundamental analysis, technical analysis and sentimental analysis. In the fundamental analysis, the interest rates, unemployment rates and gross domestic product (GDP) used to analyze the market. Technical analysis used to determine the price movements, entry and exit points, stop-loss, chart patterns, momentum indicators, support and resistance and forecast the trend of the market. Sentiment analysis is used to identify the position of the traders.
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