By Mr. Ahmad Hassam – There are so many technical indicators that you can use like the bollinger bands, the relative strength index (RSI), the stochastic, the simple moving averages, the exponential moving averages, the moving average convergence divergence (MACD), the channel commodity index (CCI) and so that you are not sure which is the best one among them. Rather, every day a new technical indicator is hitting the market with the technician who developed that indicator claiming it is the best one. So what is the best technical indicator that one can use in forex trading or for that matter in trading?
So what is the Ultimate Technical Indicator? Well, to tell you the truth, there is one indicator that will always stand above the rest. And that indicator is the price action. You see all these technical indicators are formulas that are applied to the price action to get a trading signal.
Now, in the currency market, there is no absolute price. However, currencies are priced relatively in terms of other currencies. So we may talk of USD priced relative to GBP or Euro priced relative to USD. Now this might be confusing for those traders and investors who have been trading other markets where prices are always absolute.
Now support is the price where buyers step in and start buying en masse. Think of the support as the floor. When you hit a rubber ball on the floor, it bounces back and returns to you. The price action bounces back from the support in the same way.
In the same way resistance is just like the ceiling of a room. When you throw a ball up, it will hit the ceiling and bounce back in your hands. Resistance works in the same way in the market and can be taken as a ceiling in the market where price action bounces back.
You need to understand this that large players like the big banks, hedge funds and the institutional investors trade in a totally different manner as compared to us the small traders. As a small trader, we want to enter and exit all at once since our order size is too small.
So instead of entering the market all at once, these large players enter the market gradually. This way they avoid moving the market all at once and driving the currency price up.
When the price reaches the support or the desired entry level of these big banks or hedge funds, they enter the buy order. Similarly in case of a large seller, a single order might drive the price still lower. So a large seller will always enter the market gradually. This way, you see the price bouncing back and forth between support and resistance.
About the Author
Mr. Ahmad Hassam has done Masters from Harvard. Learn this powerful Fibonacci Retracement Strike FREE that pulls 500+ pips per trade! Get this 1 Minute Forex Trading System FREE that makes money anytime instantly.
