Tools are designed for workers’ ease and productivity ultimately leading to profitability. According to FXDD, Forex traders need to have a well-stocked toolbox to get the job done, be more productive and more profitable. FXDD believes these tools should not be counterproductive.
FXDD identifies three tools Forex traders can use to attack currency trends, which include: moving averages, trend lines and remembered lines, and Fibonacci retracements.
Moving Averages: FXDD defines moving averages by taking the closing price level over a variable number of periods and calculating the average over that period is a simple moving average. The simple moving average is designed to smooth out a series of prices and take the volatility out of the series. With a shorter moving average, the faster the average will react to current price trends. With a longer moving average, the slower the average will react to current price trends. FXDD identifies that, from a technical perspective, the moving average levels are placed over a chart of line graphs, price bars and candlesticks. Additionally, FXDD recognizes that a moving average can be calculated using bar charts showing any time period. Forex traders then have to identify which moving average to use and on what time period charts, according to FXDD.
FXDD recognizes using moving average lines could be included in a Forex trader’s toolbox. The current price will be either above or below the moving average when looking at a chart. Depending on where the price is – above or below the moving average – FXDD says will determine the bullish or bearish bias. FXDD identifies the following rules when working with moving averages:
- If the current price > x-period moving average = bullish bias.
- If the current price < x-period moving average = bearish bias
FXDD notes moving averages need to define a trend or nontrend, define risk and be unambiguous to be included in a trader’s toolbox.
Trend Lines and Remembered Lines: Trend lines can be used to show speed and direction of price. FXDD says they can also identify patterns during periods of price contraction. According to FXDD, remembered lines are charted as horizontal times or narrow areas that connect highs to lows, lows to lows, or highs to highs.
According to FXDD, two trading rules apply to general trend line trading:
- The trend is bullish when the price is above an upward-sloping trend line that connects higher lows. Forex traders can use trend lines as opportunities to buy when the price is tested on dips.
- The trend is bearish when the price is below a downward sloping trend line that connects lower highs. A selling opportunity presents itself when this is identified.
FXDD notes basic bullish and bearish trend lines are just one way to draw and interpret trend lines.
FXDD finds that the market ‘remembers’ certain prices and uses these levels as a point of deflection when approached again. During consolidation periods when the market is not sure of the directional move it wants to make, is when remembered lines can form. They can also be old lows or highs from years ago, according to FXDD.
For a trader’s toolbox, FXDD finds that trend lines define both trends and risks. Furthermore, FXDD notes that remembered lines are an important tool because they may not necessarily define an up or downtrend. They often define a nontrend, which FXDD says is often more important than knowing a market is in a trending phase.
Fibonacci Retracements: Fibonacci is an Italian mathematician from the end of the twelfth and beginning of the thirteenth centuries who devised a sequence of numbers used to estimate how a population of rabbits multiplied. FXDD notes this sequence has been adopted for use by the financial markets, as well as other scientific disciplines.
According to FXDD, following the Fibonacci sequence of numbers, financial market technicians calculate retracement percentages. By using and accepting these percentages, Forex traders have helped to make Fibonacci retracements an important tool for measuring market corrections. FXDD finds Fibonacci retracements assists traders by anticipating and measuring a correction in a trending market. Additionally, since they are static lines on a graph, they can be helpful in giving traders borderline levels to execute trades perceived as having a lower risk profile. FXDD notes that Fibonacci retracements can also be used to trade the corrections or counter trends.
FXDD identifies retracements as an integral part of a trend and therefore can be a tool in a Forex trader’s toolbox. However, FXDD cautions that retracements are often where inexperienced traders start to trade against the trend and where losses start to mount. Retracements, FXDD notes, can kick-start the process of trading against the trend but where traders can lose the most money. When a retracement is recognized, defined and measured, traders can be provided with additional insight needed to attack currency trends.
FXDD’s three trading tools identified above provide all the tools necessary for traders. Having additional tools, FXDD says, would add a layer of uncertainty and possibly fear to trading activities.