Trading on the foreign exchange is no mean business. In past times, lot of such trading was limited to people with professional know-how. Today even laymen are investing a lot in this 300 trillion dollar a day industry. Such high volumes mean huge volatility. How does one read the fluctuations then? This is where the concept of automated programs or robots has done very well. The software uses various tools for technical analysis. This enables them to post a high winning percentage of pips. Let’s take up 5 such technical tools:
Fibonacci graphs– Fibonacci retrenchment graphs are based on Fibonacci squares. These give the exact points at which stocks are expected to reverse. Though no one can exactly tell at what point there may be a rally or a correction yet the Fibonacci retrenchment graphs find a pattern in the support and resistance. Just put a high and low price. The fib grid will put a price level for you. So if you are a swing trader, you can play for some very strong reversals. Fibonacci grids work on the principle that stocks tend to pull back a small percentage before investing.
Bollinger bands– these use the principle of standard deviation to find out the simple moving average for its upper and lower band to track the volatile nature of the market. For judging price reversals, they require other indicators as well. There are the short-term, medium-term and long-term bands. The upper one throws light on an overbought area. The lower one shows an oversold area. When there is a huge sale, the lower band is wiped off and the prices come close to the medium bands. It is worthwhile to know that the bands get far away when the market is very volatile.
Candlestick charts– they contain the same information as the normal bar chart but tell the relation between opening and closing prices in a more exact way. The narrow stick denotes all the prices touched during intra-day while the broad mid-part denotes the opening and closing prices. Candlestick shows a blue color if market has closed higher than where it had begun. The reverse case will show a red color. Again candlesticks need other indicators to work in tandem.
Volume analysis– volume analysis aims to suggest both why and when certain change would occur in a market. This way, it unites fundamental and technical analysis. High-rank operators bring an imbalance between demand and supply. This brings price movements. It is read by volume analysis. It uses amount of volume (capitalization), price spread and closing price to judge the direction of a currency. It suggests that market falls with imbalance of supply and rises with fluctuation in demand.
Forex trade calculator– it suggests present profit or loss on open positions. It also tells what may be the profit or loss when a position is no more open but marginally closed, partially closed or reversed. It uses real time quotes for the purpose of finding such profit/loss.