During your courses in currency trading, you will inevitably need a basic understanding of the four groups of technical analysis, and a couple of indicators used in each. Dozens of technical indicators exist, but as a new trader, or any trader, you do not need to study every indicator known to man. You should though, have at least one indicator for each group to obtain an overall view of market conditions.
The principal purpose of most technical indicators is to determine the trend, by watching a combination of volume, price, and other indicators. This is not an accurate science because the trend can change according to market statistics, positions of traders, or any significant change in any economic situation.
Know These 4 Groups Before Taking Courses in Currency Trading
The four indicator groups are:
momentum - trend - volatility - volume
Momentum indicators are used to indicate the speed or velocity of change in price from recordings over a certain time period in the past. They tell us if a currency or a market has risen to its overbought zone, or fallen to its oversold zone. A few of the indicators are: CCI-Commodity Channel Index, RSI-Relative Strength Index, CMO-Chande's Momentum Oscillator, and Stochastics.
Trend indicators are used to identify the direction of trends. The Moving Average is the most basic indicator because it smooths price action into a signle line. By averaging the data, a smoother line is produced, making it much easier to view the underlying trend. Depending what time period you use, minutes, days, months, in addition to the type of chart, daily, weekly, monthly, the trend line will exhibit different variations. A shorter time period used, will result in greater variations, making it more difficult to determine how and if the trend will change. Of course that goes to say that a longer time period chosen will result in less fluctuation, therefore easier to predict.
A few of the indicators are: MACD-Moving Average Convergence/Divergence, Moving Average Indicator, Forecast Oscillator and Parabolic SAR
Volatility indicators measure how active a market is as reflected by the size of price ranges without specifying a price direction. This is useful because a sudden change in volatility levels can often lead to a major price move. They are indicators used to describe the magnitude of day-to-day fluctuations in prices. When applying volatility indicators to a price chart, you can see how active a market is as from the size of price ranges without specifying a price direction. A few of the indicators are:
Bolinger Bands, Average True Range-ATR, Bollinger Bands (BB), Trading Bands, Volatility Chaikin's.
Volume indicators show the volume and weight of trades behind a particular move in price. They measure the the amount of buyers and sellers responsible behind market moves. They confirm the trend and the buying or selling pressure in that trend direction. As volume increases, prices usually also increase The absence of confirmation may warn of a reversal. A few of the indicators are:
Chaiken Money Flow, Force Index ,Demand Index, Ease of Movement, On Balance Volume (OBV), Volume Rate-of-Change (ROC).
Trade indicators work well when there is some continuity and predictability of the market direction. Like most indicators, they best used in conjunction with others. In the end, they're only an aid to assist traders to make informed decisions, but even so, they're extremely useful as a whole.
You'll also want to begin learning the basics of futures trading charts during your courses in currency trading I recommend http://www.forex-currencyexchange.com to learn much of the basics you'll need to get started on your way to becoming a profitable Forex trader.
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