A few technical tools to help with your trading
Disclaimer: This article is not to be taken as financial advice. See further disclaimer at the end of the page.
Forex CFD trading is risky and uncertain if you are untrained or unskilled. Tools play a very crucial role in forex CFD trading. Technical analysis and tools help traders to know the price movement and direction.
There are abundant tools available with HFTrading, and each one has a different purpose. For instance, some indicators are useful for examining performance, while others help in predicting future movements. Note that there are no extra charges in using tools provided by HFTrading for any user. Tools include price signals, patterns, indicators, oscillators, and more. However, trading decisions will ultimately remain with you (the customer.)
Here's what we believe are the top 3 tools. These tools are said to help predict forex market movements.
Top 3 indicators in predicting the forex market movement
RSI: The RSI is an essential tool for most forex CFD traders as it tells whether a currency pair is oversold or overbought. It is an oscillator tool which ranges between 0 and 100. The indicator helps traders to know the incidence of buying or selling power for a particular financial asset. Usually, if an asset price line crosses 70, then the instrument is overbought. And, if the price line is below 30, then the product is oversold. Overbought means an extended price move to the upside, while, oversold means extended price move to the downside. When the prices reach potential extreme levels, a reversal is possible. Hence, the RSI can be used as a potential indicator by Forex CFD traders.
Also, one can adjust the 70-30 norm according to the situation. For instance, if a product is too volatile, then traders could instead keep these points at 80-20.
Notably, RSI is only a tool and predicts based on past performance. Thus, it would not be helpful to use RSI solely; instead, it is prudent to consider two or three other robust tools simultaneously. See the RSI in the diagram below.
The RSI indicator was described in a 1978 book, New Concepts in Trading Systems, by J. Welles Wilder Jr.
A trader can use a tool like this on the popular trading platform MT4 available on HFTrading.com.au. The platform has a user interface which is smooth and easy to control. Furthermore, the MetaTrader 4 facilitates users with many other services like one-click trading, EA (automated trading algorithm), hedging etc.
The formula for calculating RSI:
RSI = 100 - (100/1-RS); where the RS is the average of upward trending days / average of downward days.
Most traders consider the RSI of 14 days as best for trading, but one can choose his/her preference.
Bollinger Bands: the Bollinger Band is a tool used to measure the price volatility of forex CFDs. The tool helps traders make better decisions and provides more accurate entry and exit points. The tool was developed by a market technical analyst, John Bollinger, in 1980.
The Bollinger Band is a popular trading tool amongst forex CFD traders. It is a representation of highs and lows of forex CFDson a relative basis over a specific period.
Furthermore, the tool consists of three bands, namely, top, middle, and bottom. The middle 'band' is the moving average line. The other two are the deviations from the moving average line. Here is a diagram of the tool.
Overall, the Bollinger Band tool measures the volatility of a financial instrument by calculating standard deviation. It helps to make better trading decisions.
Remember, the tool is a lagging indicator and not a leading indicator. A 'lagging indicator' helps a user by analysing past performance.
The formula to Calculate Bands:
Top Band = Simple Moving Average (20 Days) + (Standard Deviation of price x 2)
Lower Band = Simple Moving Average (20 Days) - (Standard Deviation of price x 2)
Standard or default parameters of the Bollinger Bands = (20,2); where 20 is the number of days of moving average and 2 is standard deviation multiplied by two.
Refer the diagram above for better understanding.
The financial service provider also plays a significant role for your trades. It is important that the financial service provider has all the technical tools available to help you make prudent decisions.
HFTrading provides various fundamental as well as technical analysis tools including RSI, Bollinger Bands, and Moving Average Convergence Divergence (MACD). The financial service provider also offers educational materials which include videos on demand, ebooks, courses, tutorials etc. You can check out the educational portal of HFTrading here.
MACD: The MACD is a technical analysis tool which determines the momentum of the price of a financial instrument. It is an oscillator type of tool which follows the trend to anticipate price movement.
The tool was developed in the 1970s by Gerald Appel and was further upgraded by Thomas Aspray in 1986 when he added a histogram in it.
The MACD is determined by subtracting the EMA (Exponential Moving Average) of 26 days from EMA of 12 days. The result determines the strength or weakness of the price. If the MACD is negative, then the signal is weak and vice versa. Here is a simple diagram.
Here, the blue line determines the MACD. There are other two components too, i.e. signal line and the baseline. The signal line is coded here is red and is the nine-day EMA of the product.
There is another vital component of the tool, i.e. the histogram. The histogram is calculated with the difference of the MACD line and the signal line. If the MACD line is above the signal line, the histogram goes above the MACD's baseline, and vice versa. This histogram helps traders determine when bullish or bearish momentum is high.
The MACD prediction timing
When the MACD line goes across the signal line, then it is a possible good entry point. However, remember that there are other external factors to be kept in mind also. You can apply the MACD line and all other tools and indicators in the price chart simultaneously at HFTrading. Just open the price chart of any asset and apply as many indicators as you wish.
PS: The sharp fall or rise in the MACD line with signal line indicates an oversold or overbought asset.
The bottom line
HFTrading is a financial service provider licensed by the Australian Securities & Investment Commission (ASIC). The financial service provider's website is hftrading.com.au and offers a wide range of CFDs on tradable assets which includes stocks, indices, cryptocurrencies, forex pairs, and commodities. The minimum deposit to start an account with the broker is AUD250, and spreads & charges are competitive.
There is no commission on executing a trade, and the financial service provider provides high leverage facility of 1:500 (maximum) on some accounts. There are several free deposit and withdrawal methods which include credit card, debit cards, Neteller, Skrill, and bank transfer. However, some banks use intermediary banks that charge fees, which shall be borne by the client.
CFDs are complex financial products and traders are at high risk of losing money. Most retail clients lose money trading CFDs. You should consider whether you can afford to take the high risk of losing your money. You do not own or have any interest in the underlying asset.
You should read our Terms of Use and our Product Disclosure Statement (PDS) before entering into any CFD transaction with us.
Please ensure you fully understand the risks of trading with leverage and take care to manage your exposure. You should carefully consider your objectives, financial situation, needs and level of experience before deciding to trade in the products offered by HFTrading. The contents of this page should not be construed as personal advice. HFTrading is not a financial advisor and all services are provided on an execution only basis.
The information on this page is not directed at residents of the United States or any particular country outside New Zealand or Australia and is not intended for distribution to, use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
