For those who have not heard of Technical Indicators in Trading, it is a way to predict the market’s movement based on its past trends. It is a simple system that gives you the benefit of having the trend data before making a trade. It is based on the theory that price is a force that acts on market dynamics, and technical indicators are the tools through which you can see the present trend of the price. Technical indicators are very useful in determining entry and exit points for trades. The main idea of this indicator is that once the price reaches a certain threshold, it will reverse its trend and move up.
Resistance and Support Levels
Technical indicators work with resistance and support levels. These are the highest and lowest points where the market conditions are most stable. Most Traders use support and resistance levels to enter into long or short trades. Various technical indicators are used to determine the prevailing market conditions. The commonly used are the Simple Moving Averages and Simple Moving Average Convergence Divergence.
The Simple Moving Averages
The Simple Moving Averages, also known as the SMA, is one of the most widely used technical indicators in trading. Traders use this as a strong support and resistance level. When the SMA value is over the average price, it indicates that the current price is overbought and oversold. If the current price is below the resistance level, it indicates that the current price is oversold and underbought.
MACD
The second most commonly used technical indicator in trading strategies traders are the Simple Moving Average Convergence Divergence or MACD. The MACD uses moving averages to indicate the overbought and oversold areas of the market. Traders can effectively determine the direction of the market by monitoring the MACD’s upward or downward trends. This indicator is considered a strong support and resistance level in the forex market. When the currency’s price is overbought or oversold, the MACD will show an upward trend, which signals the investor to enter the market.
When using these technical indicators, it is important to remember that trends cannot be predicted. Trends follow the basic law of supply and demand. Therefore no indicator can tell whether the current price will go up or down. It is important to understand the correlation between the moving averages and other indicators to determine if the current trend is reliable. If the indicators indicate a weakening trend, it may be a good idea to exit the market and wait for the resistance level to resume its upward movement.
