The other technique is called the double crossover, which uses shortterm
and long-term averages. Typically, upward momentum is
confirmed when a short-term average (e.g., 15-day) crosses above a
longer-term average (e.g., 50-day). Downward momentum is confirmed
when a short-term average crosses below a long-term average.
The formula for calculating the momentum (M) is:
M = CCP - OCP
Where: CCP - current closing price
OCP - old closing price
Momentum and rate of change (ROC) are simple indicators showing
the difference between today's closing price and the close N days ago.
"Momentum" is simply the difference, and the ROC is a ratio expressed
in percentage. They refer in general to prices continuing to trend. The
momentum and ROC indicators show that by remaining positive, while
an uptrend is sustained, or negative, while a downtrend is sustained.
A crossing up through zero may be used as a signal to buy, or a crossing
down through zero as a signal to sell. How high (or how low, when
negative) the indicators get shows how strong the trend is.
The formula for calculating RSI is:
RSI = 100 - [100 / (1 + RS)]
Where: RS - average of N days up closes, divided by
average of N days down closes
N - predetermined number of days
The RSI ranges from 0 to 100. An asset is deemed to be overbought
once the RSI approaches the 70 level, meaning that it may be getting
overvalued and is a good candidate for a pullback. Likewise, if the RSI
approaches 30, it is an indication that the asset may be getting
oversold and therefore likely to become undervalued. A trader using
RSI should be aware that large surges and drops in the price of an asset
will affect the RSI by creating false buy or sell signals. The RSI is best
used as a valuable complement to other stock-picking tools.
The oscillator's sensitivity to market movements can be reduced by
adjusting the time period, or by taking a moving average of the result.
This indicator is calculated with the following formula:
%K = 100 * [(C - L14) / (H14 - L14)]
C= the most recent closing price;
L14= the low of the 14 previous trading sessions;
H14= the highest price traded during the same 14-day period.
The theory behind this indicator, based on George Lane's observations,
is that in an upward-trending market, prices tend to close near their
high, and during a downward-trending market, prices tend to close
near their low. Transaction signals occur when the %K crosses through a
three-period moving average called the "%D".
One way is that when price returns to an existing principal trend line' it
may be an opportunity to open new positions in the direction of the
trend in the belief that the trend line will hold and the trend will
continue further. A second way is that when price action breaks
through the principal trend line of an existing trend, it is evidence that
the trend may be going to fail, and a trader may consider trading in the
opposite direction to the existing trend, or exiting positions in the
direction of the trend.
Don't fall in love with your Forex position.
Never take revenge of your Forex position.