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Technical analysis - indicators

How to add/remove indicators in Streamster

There are many technical indicators, I'll present you the most frequenty used ones:

 

Trend lines, trend channels, support and resistance

The price is always moving in trend. If the price is increasing for a period of time, we can talk about up trend, if the price is decreasing, we talk about down trend, if it moves just sideways, we talk about flat trend.

Prices do not move in straight lines, they always fluctuate. An up trend does not mean that the price is always just increasing, there are down moves, too. This is why we need to talk about trend lines and trend channels.

In an up trend the top of the up moves and the bottom of the down moves are always higher then the previous tops and bottoms . If we can connect at least three of these top or bottom points with a straight line, we get a trend line.Trend line, trend channel, support and resistance

The area betwen the two trendlines is the trend channel. The top trend line is the so called resistance, the bottom trend line is called support. The idea is, that the price will retrace at these levels, will not go higher than the resistance level and lower than the support level for a period of time. If the price breaks the resistance level, the resistance will become the support in the new trend channel. If the price breaks the support level, the support will become the resistance in the new trend.

Support, Resistance, Trend channel

Suggestion: Using the trading platforms charting tools draw trend line and trend channels on the charts for practice.

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Bollinger Bands

Bollinger Bands provide a relative definition of high and low of the prices. Prices are considered realtive high when they are closer to the upper band, and relative low, when they are closer to the lower band.

You can find more and detaliated information about the Bollinger Bands on John Bollinger's Bollinger Bands Forex website!

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DMI (ADX, DI+, DI-) (Directional Movement Indicator)

The Directional Movement Indicators are used to find out whether the price is trending or not.

The ADX (Average Directional Index)

The Average Directional Index is used to determine the strength of a prevailing trend. It is measured on a 0 to 100 scale. Readings below 20 are indicate a weak trend, while readings over 40 indicate a strong trend.

The DI+ (Positive Directional Indicator)

The Positive Directional Indicator is used to measure the presence of an uptrend. When the DI+ is sloping upward, that is a signal that the uptrend is getting stronger.

The DI- (Negavtive Directional Indicator)

The Negative Directional Indicator is used to measure the presence of a downtrend. When the DI- is sloping upward, that is a signal that the strength of the downtrend is getting stronger.

The Positive Directional Indicator and the Negative Directional Indicator are ususally plotted together.

When the Negative Directional Indicator cross above the Positive Directional Indicator that is the signals of the beginning of a new downtrend.

When trhe Positive Directional Indicator cross above the Negative Directional Indicator that is a signal of the beginning of an uptrend.

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SMA (Simple Moving Average)

The Simple Moving Average is calculated by adding the price for a number of time periods and then dividing this total by the number of time periods. Is the average price for certain period.

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EMA (Exponential Moving Average)

The Exponential Moving Average is the same as the Simple Moving Average, except that the latest data is exponentially weighted and this way reacts faster to recent price changes than the simple moving average.

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WMA (Weighted Moving Average)

The Weighted Moving Average WMA is measured by averaging all the previous values over the given period, (also the ongoing value). These values are weighted linearly (the oldest value gets a weight of 1, the next value gets a weight of 2, and so on up to the ongoing value, which gets the same weight as the period). Until there are enough values to fill the given period the moving average at the start of a data series is not determined. It places even greater importance on recent data than the EMA does.

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MACD (Moving Average Convergence/Divergence)

The MACD shows the difference between a fast and slow exponential moving average of closing prices. It is used to identify trend changes

Signals:
  • when the MACD falls below the signal line, it is sell signal
  • when the MACD rises above the signal line, it is buy signal

  • when the price diverges from the MACD, means that the current trend over

  • when the shorter moving average pulls away from the longer-term moving average, means that the instrument is overbought

  • when the MACD is above zero, the short-term average is above the long-term average, which signals upward momentum and the oposit when the MACD is below zero. 

 

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RSI (Relative Strength Index)

The Relative Strength Index compares the magnitude of the recent gains to the magnitude of the recent losses and turns that information into a number that ranges from 0 to 100.

Signals:
  • If the RSI is under 30 it is considered a buy signal.
  • If the RSI is above 70, it is a sell signal.
  • If the RSI is above 50 indicates that average gains are higher than average losses.
  • If the RSI is below 50 indicates that average losses are higher than average gains.

 

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