By Kathleen Brooks: Research Director UK,

The forex market can be overwhelming for a novice trader. Some people think you have to be glued to the computer screen constantly watching prices, always ready to react if prices move in the direction you want.

But what about those who can't sit in front of a screen for that long? What about those people who work or need to organize their kids/ dogs/ parents etc. Not many people can sit still for hours looking at prices or charts without losing concentration. But looking at prices is only one aspect of forex trading.

Others think you need to be aware of every piece of news, economic data and central bank speech. Yet in reality no one can be on top of everything all the time. While it is definitely important to have some knowledge about economic data releases and major political events that could move markets, each trader needs to choose their own key metrics that work for them.

Technical Analysis Basics for Forex Traders
Technical analysis is a great tool to add to your forex trading kit. This may not be the Holy Grail, but it is useful to determine trend and direction, as well as overbought and oversold conditions in the markets.

My two favorite technical indicators are listed below and they include a brief explanation of each one and what it can be used for. I consider myself a bit of a fundo-technical trader. This means that I keep up to date with economic news and events, since these are the main drivers of prices, but I use technical analysis when I go to choose and then execute a trade.

Here are two indicators I couldn't be without:

Moving Averages
These are the basic indicators you should get yourself acquainted with from the beginning. They make up the base of most other technical indicators and so a rudimentary knowledge early on will help you determine how other indicators work.

Two things are necessary to determine a moving average: firstly a set of prices and a time series over which you want to analyze the data. I look at simple moving averages, which is the mean of the previous prices from the time series you have requested. You can have both short and longer-term moving averages, for example 21 and 200 periods, you can also determine if you want to look at hourly, daily or weekly prices. For example, a 21-hour moving average looks at hourly prices over the last 21 periods, a 200-hr looks at hourly prices over the last 200-periods.

It is worth looking at moving averages alongside a bar or candlestick chart. These charts can sometimes be difficult to read – prices may have fluctuated widely and it can be difficult to spot an immediate trend. Moving averages can help solve this problem as they smooth out prices and help you to determine overall direction in the market. I use 21, 55, 100 and 200 periods for my moving averages as they seem to be among the most widely used in the market. Typically when the short-term average crosses above the longer-term it indicates and upward trend, and a downward trend when the short-term crosses below the long-term.

Moving averages can also be used as support and resistance levels. An important caveat to note is that moving averages are not completely accurate. They are merely indicators of market direction and so should be used with caution.

The Pivot Points
This is another average, but this time of significant prices, for example the high, the low and the close, from the prior trading period. It is a useful predictor of market movement in the short-term. For example, if the market is trading above the pivot point this is taken as a bullish signal, and below the pivot point is considered bearish.

The definition of pivot is something that rotates or swings, or a central or crucial factor. Both of these terms are useful for describing how pivot points work in financial markets. They are often considered turning points for price direction and crucially for traders they are considered leading indicators.

Using the Tools
So how do you use them? Let's use an example. EUR/USD's pivot point is at 1.4375. The pair is quite directionless so we can assume that it should trade around this point, at least in the short-term. However, within a few hours the pair is trading at 1.4390, above the pivot point. This suggests that the euro has some upward momentum behind it. At this stage you need to look at the primary resistance level, which is 1.4425 – the level at which EUR/USD may lose some steam. If it can overcome this hurdle then it may not lose steam until 1.4490 – the secondary pivot point. These pivot points and resistance levels must be determined prior to execution of the strategy.

Pivot points have so many uses they are a must when I go to make a trade, especially when I am looking for stop-loss levels and profit targets. Markets never go up in a straight line, which can be the undoing of many a good day trader. Pivot points help you to determine when an up or down move might have run out of steam and you should think about getting out of a position. It's important to note that pivot points aren't always correct, but they can be a useful tool to have especially if you are a time-strapped day trader.

Bottom Line
Technical indicators have been extremely useful. For example, if Europe is having a debt crisis; the euro should be lower right? Not necessarily, it can hold up well against the dollar and the pound but can be sold-off to record lows against the Swiss franc. Technical indicators can help you to grasp what is going on in the markets, hopefully saving you from getting burnt.

There are hundreds of technical indicators; these are just as couple of my favorites. They are not always perfect and don't guarantee you anything, but they help me to get a grip on markets when the news appears contradictory at best and utterly overwhelming at worst. For more information on technical analysis please visit today.

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Services Authority (FSA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan.

Related Articles
  1. Budgeting

    Is Living in Europe Cheaper than in America?

    Learn how living in Europe has financial advantages over living in the United States. Discover the benefits to take advantage of when it makes financial sense.
  2. Chart Advisor

    Breakout Opportunity Stocks: CPA, GNRC, WWE

    After a period of contracting volatility, watch for breakouts and bigger moves to come in these stocks.
  3. Economics

    Understanding the History of Money

    Money has been a part of human history for at least 3,000 years, evolving from bartering to banknotes.
  4. Chart Advisor

    Stocks With More Upside Due to Bear Traps (TAP, SPY)

    A bear trap is a pattern that typically leads to at least a short-term rise in prices. Here are stocks exhibiting the pattern.
  5. Forex Fundamentals

    How To Calculate An Exchange Rate

    An exchange rate is how much it costs to exchange one currency for another.
  6. Stock Analysis

    3 Risks U.S. Equities Face in 2016

    Find out why the probability of a U.S. stock bear market is increasing in 2016 and what the greatest risks are to the bull market that is almost 7 years old.
  7. Forex Education

    Four Currencies Under the Spotlight in 2016

    With currencies having become the “tail that wags the dog,” in terms of their impact on the global economy, these four currencies will be under the spotlight in 2016.
  8. Chart Advisor

    Watch For a Bounce in These Emerging Markets (BRF, PEK)

    While downtrends are clearly in control of the direction of many emerging market ETFs, short-term indicators suggest a bounce higher could be in the cards.
  9. Investing Basics

    Valuation Models: Apple’s Stock Analysis With CAPM

    The capital asset pricing model, or the CAPM, estimates the expected return of an asset based on the systematic risk of the asset’s return.
  10. Chart Advisor

    Watch For Stock Breakouts Here

    Four stocks with potential breakouts across various time frames and pattern.
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  3. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  4. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  5. How is the value of a pip determined?

    A pip in foreign exchange trading is a measure of a price movement in a currency pair. "Pip" is an acronym for price interest ... Read Full Answer >>
  6. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  2. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  3. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  4. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  5. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  6. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
Trading Center