The A-Z of Forex Trading: Part 1 (A to F)

Filed under: Learn Forex Trading |

This is the A-Z of forex trading. There are so many aspects involved in trading forex that I expect that there will be something for each letter of the alphabet. Here goes…

 

A… is for ADX. ADX is a technical indicator, which measures the strength of the trend. This can be useful if you are trading market momentum, and it is one of the most popular of the technical indicators.

 

B… is for Bollinger Bands. Bollinger Bands are another technical indicator that is used to measure the volatility of a market. When the market is very volatile, the bands widen, and when the market is consolidating, the bands contract. Traders use these bands to make contrarian trades at the extreme edges of the bands.

 

C… is for Charts. Perhaps the most important tool in a trader’s toolbox. Candlestick charts are my charts of preference because they divulge so much more information. Don’t use them at your peril!

 

D… is for Divergences. This is when the price on a chart and a technical indicator are telling you two different things. For example, price may be moving up, but the RSI indicator may be moving down. This tips us of to the fact that the market may be about to turn.

 

E… is for Engulfing patterns. This is one of my favourite types of price action signals. It occurs in a strong trend when one candle completely engulfs the previous one. In a bull trend, a bear candle would completely engulf the previous bullish candle, and in a bear trend, a bull candle would completely engulf the previous bear candle. This tells us that a new trend might be about to begin.

 

F… is for Fibonacci. The Fibonacci retracement tool is a very useful tool in forex trading. The 50% and 61.8% levels are often particularly significant as areas of support/resistance, and when used in confluence with other signals, it can be a very useful tool.

 

(To be continued…)

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