Fxbasic

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How to Trade Forex Using the Stochastic Indicator

The Stochastic technical indicator tells us when the market is overbought or oversold. The Stochastic is scaled from 0 to 100.

When the Stochastic lines are above 80 (the red dotted line in the chart above), then it means the market is overbought.

When the Stochastic lines are below 20 (the blue dotted line), then it means that the market is possibly oversold.

As a rule of thumb, we buy when the market is oversold, and we sell when the market is possibly overbought.

Many forex traders use the Stochastic in different ways, but the main purpose of the indicator is to show us where the market conditions could be possibly overbought or oversold.

Keep in mind that Stochastic can remain above 80 or below 20 for long periods of time, so just because the indicator says “overbought” doesn’t mean you should blindly sell!

The same thing if you see “oversold”, it doesn’t mean you should automatically start buying!

The Stochastic oscillator is another technical indicator that helps traders determine where a trend might be ending.

The oscillator works on the following theory:

During an uptrend, prices will remain equal to or above the previous closing price. During a downtrend, prices will likely remain equal to or below the previous closing price.

This simple momentum oscillator was created by George Lane in the late 1950s.

One indicator that can help us determine where a trend might be ending is the Parabolic SAR (Stop And Reversal).

A Parabolic SAR places dots, or points, on a chart that indicates potential reversals in price movement.
From the image above, you can see that the dots shift from being below the candles during the uptrend to above the candles when the trend reverses into a downtrend.

How to Trade Using Parabolic SAR

The nice thing about the Parabolic SAR is that it is really simple to use. We mean REALLY simple.

Basically, when the dots are below the candles, it is a BUY signal.

When the dots are above the candles, it is a SELL signal.

MOVING AVERAGE

Moving averages are one most commonly used technical indicators.

A moving average is simply a way to smooth out price fluctuations to help you distinguish between typical market “noise” and the actual trend direction.

By “moving average”, we mean that you are taking the average closing price of a currency pair for the last ‘X’ number of periods.

On a chart, it would look like this:



As you can see, the moving average looks like a squiggly line overlayed on top of the price (represented by Japanese candlesticks).

This type of technical indicator is called a “chart overlay“.

The moving average (MA) isoverlayed on the price chart! Ya dig? 😎

Like every technical indicator, a moving average (MA) indicator is used to help us forecast future prices.

But why not just look at the price to see what’s happening?

The reason for using a moving average instead of just looking at the price is due to the fact in the real world, aside from Santa Clause not being real…..trends do not move in straight lines.

MACD

° Used to catch trends early and can also help us spot trend reversals

° It consists of 2 moving averages (1 fast, 1 slow) and vertical lines called a histogram, which
measures the distance between the 2 moving averages.

° Contrary to what many people think, the moving average lines are NOT moving averages of
the price. They are moving averages of other moving averages.

° MACD’s downfall is its lag because it uses so many moving averages.

° One way to use MACD is to wait for the fast line to “cross over” or “cross under” the slow
line and enter the trade accordingly because it signals a new trend.

Bollinger Bands
• Used to measure the market’s volatility

• They act like mini support and resistance levels

• Bollinger Bounce

* A strategy that relies on the notion that price tends to always return to the
middle of the Bollinger Bands
* You buy when the price hits the lower

Bollinger band
* You sell when the price hits the upper

Bollinger band
* Best used in ranging markets

• Bollinger Squeeze

*A strategy that is used to catch breakouts early
* When the Bollinger bands “squeeze” the price, it means that the market is
very quiet, and a breakout is eminent. Once a breakout occurs, we enter a
trade on whatever side the price made its breakout.

The various types of indicators

* Bollinger Band
* Moving Average
* MACD
* Parabolic Sar
* Stochastic
* RSI ( Relative Strength Index )

Next one *Base and Quote currency*

Before that let me define what *currency pair* is.

What Is a Currency Pair?
A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency.

Let's take *EURUSD* as an example

Ie The first Currrency pair on that image that I uploaded above

EURO is stronger than the US Dollars.( I believe we all know that)

Hence EURO is the Base while USD is the Quote

*....read that again and let it sink*

Another example is

*USDJPY*

The 3rd pair in that image above

In this second example

USDollars is the Base while Japanese Yen Is the Quote
.

Because the USD is stronger than the Japanese Yen

Bullish

When traders are bullish about an asset, they believe that its price will rise. Bull markets feature rising prices.. Which also means *buyers*

Bearish
When traders are bearish about an asset, they believe that its price will fall. Bear markets feature falling prices. Which also means *Seller*

Fx basic will be hosting a free online class for beginners .. Interested people should dm