Forex Signals

Forex signals are based on various technical indicators. A Technical Indicator is a series of data points that is used to try and predict movements in currencies. Many currency traders subscribe to services that provide signals online, or by email or cel phone.

Since the FX markets can move in an instant, and because there are some many factors that can be taken into account when making trade decisions, forex signals are how most traders aggregate their data.

Below are listed some of the factors forex signals can be based on:

Trends and Gaps are some of the most common signal indicators.

Gaps are spaces left on the bar chart where no trading has taken place.

  • An up gap is formed when the lowest price on a trading day is higher than the highest high of the previous day.
  • A down gap is formed when the highest price of the day is lower than the lowest price of the prior day. An up gap is usually a sign of market strength, while a down gap is a sign of market weakness.
  • A breakaway gap is a price gap that forms on the completion of an important price pattern. It signals usually the beginning of an important price move.
  • A runaway gap is a price gap that usually occurs around the mid-point of an important market trend. For that reason, it is also called a measuring gap.
  • A exhaustion gap is a price gap that occurs at the end of an important trend and signals that the trend is ending.

Trends refer to the direction of prices. Rising peaks and troughs constitute an uptrend; falling peaks and troughs constitute a downtrend, that determine the steepness of the current trend. The breaking of a trendline usually signals a trend reversal. A trading range is characterized by horizontal peaks and troughs.

Moving averages are used to smooth price information in order to confirm trends and support and resistance levels. They are also useful in deciding on a trading strategy particularly in futures trading or a market with a b up or down trend.

For simple moving averages, the price is averaged over a number of days. On each successive day, the oldest price drops out of the average and is replaced by the current price- hence the average moves daily. Exponential and weighted moving averages use the same technique but weight the figures-least weight to the oldest price, most to the current.

Stochastic Oscillator is used to indicate overbought/oversold conditions on a scale 0-100%. The indicator is based on the observation that in an up trend, closing prices for periods tend to concentrate in the higher part of the period’s range. Conversely, as prices fall in a down trend, closing prices tend to be near to the extreme low of the period range.

Moving Average Convergence Divergence (MACD). This indicator involves plotting two "momentum" lines for moving averages, and triggers a forex signal. The MACD line is the difference between two exponential moving averages and the signal or trigger line which is an exponential moving average of the difference. If the MACD and trigger lines cross, then this is taken as a signal that a change in trend is likely.

Fibinacci Number Sequence (1,1,2,3,5,8,13,21,34…..) is constructed by adding the first two numbers to arrive at the third. The ratio of any number to the next larger number is 62%, which is a popular Fibonacci retracement number. The inverse of 62%, which is 38%, is also used as a Fibonacci retracement number.