Techniques and Terminologies for Analysis in Foreign Exchange Trading


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There are various tool and techniques that are associated with technical analysis in understanding as well as predicting the trends in foreign exchange trading market. The major goal in using these methodologies is to find out the various features that are associated with the trends in the market. The components of a trend are direction, timing and also its level. The various techniques which are common in connection with technical analysis are the following.

Bollinger Bands and Foreign Exchange Trading

Bollinger bands can be considered as the range indicating the volatility in price. This tool was formulated by John Bollinger. The major concept behind this bands are the trading bands and these bands are used in measuring relative depth as well as height of the price of a currency that is under foreign exchange trading. These bands are plotted in a manner that is two standard – deviation away considering the simple – moving averages. The Bollinger bands have the capability to adjust with the conditions in the market. As the volatility of the market increases bands become wider and the bands get contracted with the decrease in volatility. This indicator clearly spots whether the market is suitable for you to enter in to a trade. Closer prices move towards upper band and it id the indication of an overbought market and the movement of prices to lower band indicated an oversold market.

Support Level

It is the indication of the lowest price with which a currency has undergone trading for a particular time period. With the longest sustenance of a price level, the support level also becomes strong. Traders believe that when support is stronger for a particular price level then there are fewer chances for the price of the currency to go below this level in future. So you can make your decisions on whether to stay with a trade or not by making use of this indicator.

Resistance Level

Resistance level can be considered as the maximum price with which a particular currency can undergo trading. The price of the currency cannot exceed this particular level of resistance for the time period for which the indicator is generated.

Support or Resistance Breakout

This is the indicator that is used when the price of a currency gets a value beyond support or resistance level and stays in that particular level for some time period.

Hikkake Pattern

This is a methodology that is used for the identification of continuation patterns as well as reversals. This tool was introduced by Daniel Chesler who is a technical analyst. This is a tool that is perfect for the indication of turning points or continuations that may arise in the market. This pattern can be seen in price data of market, bar chart and candlestick charts.

Moving Averages

This is a tool that is related with technical analysis and is used for the indication of the direction of a price trend in the foreign exchange trading market.

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