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In the world of forex trading, two major analytical approaches dominate:
Technical Analysi: Relies on technical indicators and trading models. It's straightforward, cost-effective, and highly suitable for beginners.
Fundamental Analysis: Based on financial theories and data analysis, requiring extensive knowledge and long-term study, making it less suitable for most beginners.
For newcomers, mastering technical indicators is more practical. By learning just two key technical indicators, you can achieve significant progress!
1. Moving Average (MA)
One of the most widely used technical indicators, the Moving Average (MA) generates a curve by averaging closing prices. MA can be categorized into short-term, medium-term, and long-term indicators with specific parameters:
- Short-term Trading: Use 56-hour, 36-hour, and 18-hour MAs.
- Medium-term Trading: Use 6-day, 20-day, and 60-day MAs.
Granville's 8 Rules
1. Buy when the price crosses above a flat MA.
2. Buy when the price touches the MA and rebounds.
3. Buy when the price falls significantly below the MA and rebounds.
4. Buy when both the MA and price are rising.
5. Sell when the price crosses below a flat MA.
6. Sell when the price rebounds to the MA and falls again.
7. Sell when the price is far above the MA and starts to fall.
8. Sell when both the MA and price are falling.
Double (or Multiple) Moving Averages
Using two or more MAs on one chart can enhance analysis. For example, using a 6-day short-term MA and a 20-day medium-term MA:- Golden Cross: Buy when the short-term MA crosses above the medium-term MA.
- Death Cross: Sell when the short-term MA crosses below the medium-term MA.
Parameter Selection:
- Short-term MA: Choose the one that best depicts recent price movements.
- Medium-term MA: Should provide support or resistance to the price.
2. Moving Average Convergence Divergence (MACD)
Definition
MACD is an evolution of the MA, using two different speed exponential moving averages (EMA) to calculate the difference (DIF). Then, a 9-day EMA of the DIF is plotted, known as the MACD line.Golden Cross and Death Cross
- Golden Cross: Buy when the fast line (short-term EMA) crosses above the slow line (long-term EMA).
- Death Cross: Sell when the fast line crosses below the slow line.
MACD Divergence
When the direction of the MACD lines diverges from the price trend, it signals action. If the price makes a new high or low without a corresponding MACD movement, it suggests a divergence:- Bullish Divergence: Buy when the price makes a new low, but MACD doesn't.
- Bearish Divergence: Sell when the price makes a new high, but MACD doesn't.
