If you have been trading the Forex market then you must have known that in technical analysis, we are required to be able to read the chart properly. There are lots of traders out there that use technical analysis to determine the future price movement. They calculate and analyze the chart based on the previous price data. Technical analysts often believe that price will repeat what it’s done in the past. That is why previous data on the chart is really important for technical analysts to examine so they can make the best judgment on the next possible price movement.
To help them determine price’s next movement, analysts usually adding some indicators to their chart in order to help them reads the chart more clearly and to have guided help from them on what might be happening in the future.
There are many indicators that trader can use to help them in their technical analysis. Each one of those indicators are unique, have their own ability to predict price movement and very helpful if the traders knows how to use them properly. Some indicators are usually attached to the chart below the price while other are usually attach directly to the price itself. Many traders uses more than three or even five indicators, while some of them uses only one indicator or none at all. It is just individual preferences really.
Technical traders such as the scalp traders usually combine two or more indicators to help them predict price movement easily. Scalp traders always like to use indicators that are fast such as the Parabolic SAR, Moving Averages and Bollinger Bands. The combination between those three can bring good result for short term traders such as the scalp traders. Scalp traders are commonly using the small time frame such as 5 minutes and 1 minute chart. That is why they need fast indicators to help them make the best judgment from it.
Swing traders and day traders are known for their use of lagging indicators. Lagging indicators are the indicators that always move by following the price action. This mean indicators are forming after the price has close. Such indicators are like Moving Average Convergence Divergence (MACD), the Slow Stochastic and Relative Strength Index (RSI)
Lagging indicators are usually telling the traders about the possible price reversal that might be happening in near future. Overbought and oversold condition can also be recognized through them. For example, there are points on the Slow Stochastic that telling people whenever the indicator reach to some points, the overbought – oversold condition may apply. And when those conditions are applied, traders might want to be very careful if they are still having open position because price will probably out of gas to continue its move to the upside or to push even lower to the downside.