Everybody wants to make profit in forex trading, right? The most important aspect that a forex trader must understand in order to increase the probability of gaining profit is to understanding forex signal. I try to explain this signal as simple as possible so every beginner can easily understand it.
In forex trading, profit can only be obtained if the currency price moves. Prices have moved up or down. Tendency of prices to move in a particular direction is called a trend. Understanding of the trends will be very useful and is one important consideration in taking your trading position. Because the position in forex trading there are two, namely buy and sell, then there are also two kinds of trends, the uptrend and downtrend.
It can be concluded that understanding the trends are very important and should not be overlooked. If you ignore the condition of the trend, then you have changed the world of forex trading to become the gambling arena. Technical analysis is an important tool to understand the trends that are prevailing today. If the trend is rising and you open BUY position, then most likely you will achieve capital gains.
But there are certain conditions where the trend are very difficult to predict. For example when a sudden economic turmoil, so that trend can be reversed dramatically. Or when the market does not move up or down, which is called sideways market. Sideways condition commonly occurs when the market of Europe / America are being closed, or the market is awaiting important data that could affect the market significantly.
Support and Resistance
Other important terms that you should know is the support and resistance. Both play an important role in technical analysis and trend. Once a trend is happening, for example uptrend, will this condition continue forever? Of course not! Any uptrend will reach a certain point that makes it stop rising and then decline. Vice versa, when a downtrend is in progress, someday it will reach a certain point which makes it rise again.Turning point in which reversing trend is happening is referred to as support or resistance. Lower limit of the price movement called the support, whereas the upper limit is called resistance.
There are several ways to find support and resistance points. One of the most popular way is to use Fibonacci numbers. When the price reaches the point of support, usually trend will turn up. Similarly, when price touches the point of resistance, the downtrend is likely to occur.
Simply put, support marking a boundary defense of the price of a currency, while resistance can be regarded as the highest limit price increases of a currency. This makes the second breakdown limit the movement of prices will further go up / down and go to the next support or resistance point. That is why you will get some support and resistance points in every forex forecasting.
Overbought and Oversold
Both of these conditions can only be observed if you use a graphic analysis which is referred to as RSI or Stochastic. I will discuss them in different articles. In short, Overbought and Oversold is a condition where the price can no longer continue the trend because it was too expensive or too cheap. If support and resistance is the psychological level which is basically just an unofficial agreement with fellow forex trader, Overbought and Oversold is a condition that is more real and common in forex market.
At the point of overbought or oversold, a trend has a tendency to reverse. It is similar when the price eventually reach the point of support or resistance, where trend could reverse, but even touching the support or resistance while the signal overbought or oversell have not happened then the reversal trend likely will not happen.
