A guide to understanding the movement of the Forex Market

 

There is no doubt that Forex (foreign exchange) trading is one of the most popular and lucrative investment opportunities on the planet. But before you can start making money with this complex market, you need to understand how it works - which is what this guide will aim to do. By the end of it, you'll have a better understanding of Forex markets and the strategies that successful traders use to make money.

How does Forex Trading Work?

Forex trading is a type of investment that allows investors to make speculative investments in the foreign exchange market. Forex trading involves buying and selling currencies against each other. While there are a lot of different aspects to forex trading, this article will focus specifically on how the forex market works.

When you buy or sell a currency, you are actually buying or selling a quantity of that currency. The amount of currency you purchase or sell is called a contract. When you buy a currency, you are agreeing to purchase that currency at a set price in the future. When you sell a currency, you are agreeing to sell that currency at a set price in the future. You can also sell contracts for cash.

The forex market is open 24 hours per day, 7 days per week. This means that you can trade any time of day or night. The forex market is also global, so you can trade any currency with anyone else around the world.

The forex market is constantly shifting because traders are always trying to anticipate which currencies will rise and which currencies will fall in value. This process is called price discovery. Price discovery happens when traders try to figure out the value of a currency by looking at how much other traders are willing to buy and sell that currency using charts.

When you buy a currency, you are betting that the price of that currency will increase in the future. When you sell a currency, you are betting that the price of that currency will decrease in the future.

Technical Indicators to understand the movement of the forex market

Technical indicators are a very important part of the forex market. They can help traders find opportunities and avoid potential risks. Here is a guide to understanding the movement of technical indicators:

ADX Indicator

The ADX is a leading indicator used to identify oversold and overbought conditions in the market. It is composed of 10 levels that range from 0 to 30. When the ADX moves above 30, it signals an oversold condition, while when it falls below 20, it indicates an overbought one.

MACD Indicator

The MACD is a momentum indicator that helps traders identify short-term trends and reversals in the market. It consists of two moving averages; the 12-period moving average (MA12) and the 26-period moving average (MA26). The MA12 reflects recent activity more than the MA26, which gives a better indication of longer-term trends. When the MACD crosses above its zero line, it signals an upward trend, while a downward crossover indicates a market trend reversal.

The RSI

The RSI is another momentum indicator that helps traders identify short-term rallies and declines in the market. It ranges from 0 to 100, with a value above 50 indicating an overbought market and a value below 50 indicating an oversold market.

Fibonacci retracement indicator

The Fibonacci retracement indicator is used to identify potential support and resistance levels in the market. It calculates the percentage of the current price movement that has been achieved by taking the previous two points and dividing them by the current price. When the percentage reaches 50%, it signals a potential support level, while a level below 30% indicates a potential resistance level.

All these indicators are present in Olymp Trade platform. You can try them out using their unlimited demo account.