The problem many beginner Forex traders face is being overwhelmed with information. While the internet is a great resource for free information, the amount of information available is huge and sorting through it for valuable information can be very time-consuming.

If you would like to learn Forex trading online we really recommend the best approach is to purchase and read a Forex trading ebook. A popular ebook that we recommend is the Forex Trading Machine. A Forex trading e-book does offer the beginner many advantages including:

- The language used is targeted at beginners and technical terms are explained.
- E-Books generally have a good structure, starting with the basics and building up to more advanced topics.
- E-Books can introduce you to important concepts and ideas for Forex trading that you might not have thought about searching for, providing a good base for further research.
- You time is valuable, finding and sorting through free Forex trading information can be very time-consuming.

Good luck with your Forex trading!

There are three types of moving averages: Simple, Weighted and Exponential.

In a simple moving average each price point over the specified period is given equal weight. The user must define whether the high, low or close is used, these price points are then added together and averaged. As each price point is added to the equation a line is formed and the oldest price point in the sample is dropped.

A weighted moving average gives more emphasis to recent data. Each price point is multiplied by a weighting factor which will change every day. These figures are then added and divided by the total of the weighting factors. The weighted moving average provides smoothing to a curve of prices while being more responsive to recent price movements.

An exponential moving average is another way of giving more emphasis to recent data. A percentage of the most recent price is multiplied by the previous period’s average price.

Fortunately, most charting packages do all the calculations for you.

Traders look to find the optimum moving average for a particular currency pair. This process involves testing the different types of moving averages and varying the time periods used to find a fit for the price data.

Many traders use a few different moving averages on each price chart. For example a trader might use a 5 period, 13 period and 60 period moving average on the same price chart. The trader will look for how the moving averages can be used together to provide confirmation for a trade.

Larger moving averages (eg. the 60 period) can help the trader to confirm the long term trend, but lag behind the price and are slow to respond to a changing trend. Smaller moving averages (eg. the 5 period) can help to spot short term trends and reversals, they follow the price trend pretty closely but are more influenced by normal price fluctuations.

Traders often look for a moving average that has been a line of support or resistance in the past. This line is then used to place stops, profit targets and look for trend reversal opportunities. Many traders also look for the moving averages to cross over to identify a trade opportunity.

Like any other technical indicator, moving averages work with a delay. The moving average line is only a forecast of what could happen in the future, not a guarantee of what will happen.

There are a few other more complicated moving averages you might come across.
- Double Exponential Moving Average (DEMA)
- Triple Exponential Moving Average (TEMA)
- Forecast Moving Average
- Least Squares Moving Average
- Modified Moving Average
- Time Series Moving Average
- Triangular Moving Average
- Zero Lag Exponential Moving Average

The best way to find out how these different moving averages respond to price data is to open up a currency (or stock) trading demo account and try them out on a chart.

Forex Made Easy is a book written by James Dicks, the full title of the book is Forex Made Easy : 6 Ways to Trade the Dollar and was published in 2004. The book contains a lot of useful information for beginner traders, including basic information on setting up a workstation for trading, technical analysis, advanced indicators, Fibonacci sequences, Elliot Wave, money management and how to place trades. At Amazon the book achieves an average rating of 2 1/2 stars, but this ranking seems to be split between very high ratings and very low ratings. In fact 25% of customers to date have given the book a rating of 5 stars, the highest rating possible. The most satisfied customers appear to be beginners who appreciate the basics the book goes through without being overwhelmed with information.

Forex Made Easy is also a software program for trading forex. The title of the software is 4X Made Easy, the 4X being a play on the word forex. The software is produced by GlobalTec Solutions, LLP and is available through the website 4x.wizetrade.com. The company frequently attends forex trading expo’s and conducts free workshops, if you are interested in this software attending one of these is a good way to see the software in action.

The company claims that the software offers; research, a trading platform and a training system. The software provides green and red lights to help determine potential entry/exit signals for any currency pair.

Bad reviews for the software seem to outnumber good ones 10 to 1 on any review site. Many users complain that obtaining a refund was difficult, or impossible due to some fine print they hadn’t read. Others complain about the additional monthly costs you are forced to pay in order for the software to function. Satisfied users seem to point out that it isn’t really forex made easy, it can take a long time to learn to use the system and if you’re looking for an easy way to make money this isn’t it.

The best advise I can give on this software is to read the reviews. If you decide to purchase, make sure you read the fine print so you can claim a refund if you’re not happy. Remember Forex Made Easy stands for 4X Made Easy.

Moving Averages
A moving average, in technical analysis, is the most used indicators in a family of statistical techniques to analyze time series data.

A moving average series in Forex trading can be calculated for any time series, but is most often applied to currency prices or trading volumes. Moving averages are used to smooth out short-term fluctuations, thus highlighting longer-term trends or cycles. The threshold between short-term and long-term depends on the application, and the parameters of the moving average will be set accordingly.

Simple moving average
A simple moving average is the unweighted mean of the previous n data points. For example, a 10-day simple moving average of closing price is the mean of the previous 10 days’ closing prices.

In technical analysis there are various popular values for n, like 10 days, 40 days, or 200 days. The period selected depends on the kind of movement one is concentrating on, such as short, intermediate, or long term. In any case moving average levels are interpreted as support or resistance depending which side of the currency pair you are looking at.

In all cases a moving average lags behind the latest price action, simply from the nature of its smoothing. A Simple Moving Average (SMA) can lag to an undesirable extent, and can be influenced too much by old prices dropping out of the average. This is addressed by giving extra weight to recent prices, as in the Weighted Moving Average (WMA) and Exponential Moving Average (EMA) below.

Weighted moving average
In technical analysis a weighted moving average (WMA) has the specific meaning of weights which decrease arithmetically from highest weight for the most recent days, down to zero by an equal amount each time. It can be compared to the weights in the exponential moving average which follows.

Exponential moving average
An exponential moving average (EMA), sometimes also called an exponentially weighted moving average (EWMA), applies weighting factors which decrease exponentially. The weighting for each day decreases by a factor, or percentage, on the one before it.

The N periods in an N-day EMA only specifies the α factor. It isn’t a stopping point for the calculation in the way N is in an SMA or WMA. The first N days in an EMA do represent about 86% of the total weight in the calculation though.

Other weightings
Other weighting systems in Forex trading are used occasionally – for example, a volume weighting will weight each time period in proportion to its trading volume.

There are weighting systems designed using a combination of moving averages: The DEMA indicator (and TEMA indicator (Triple Exponential Moving Average) are unique composites of a single exponential moving average, a double exponential moving average, and in the latter case a triple exponential moving average that provides less lag than either of the three components individually. The TRIX indicator uses a triple-EMA in its calculation. This ends up as just a certain set of weights on past data, and a set quite different to a plain EMA actually.

MACD
MACD is a trend following indicator, and is designed to identify trend changes. It’s generally not recommended when your currency pair is in ranging market conditions. Three types of trading signals are generated:

• MACD line crossing the signal line
• MACD line crossing zero
• Divergence between price and MACD levels

The signal line crossing is the usual trading rule. This is to buy when the MACD crosses up through the signal line, or sell when it crosses down through the signal line. These crossings may occur too frequently, and other tests may be needed to be applied.

The purpose of the histogram is to help show when a crossing occurs, since when it crosses through zero the MACD crosses the signal line. The histogram can also help visualizing when the two lines are coming together. Both may still be rising, but coming together, so a falling histogram suggests a crossover may be approaching.

A crossing of the MACD line up through zero is interpreted as bullish, or down through zero as bearish. These crossings are of course simply the original EMA(12) line crossing up or down through the slower EMA(26) line.

Positive divergence between MACD and price arises when price makes a new selloff low, but the MACD doesn’t make a new low, ie. it remains above where it fell to on that previous price low. This is interpreted as bullish, suggesting the downtrend may be nearly over. Negative divergence is the same thing when rising, ie. price makes a new rally high, but MACD doesn’t rise as high as it did before; this is interpreted as bearish.

Divergence may be similarly interpreted on the price versus the histogram, ie. new price levels not confirmed by new histogram levels. Longer and sharper divergences (distinct peaks or troughs) are regarded as more significant than small shallow patterns in this case.

Looking at a MACD on a weekly scale before looking at a daily scale could be a great idea as well so as to avoid making short term trades against the direction of the intermediate trend.

Parabolic SAR
In Technical analysis, Parabolic SAR (SAR – stop and reverse) is a method to find trends in currency prices. It may be used as a trailing stop loss based on prices tending to stay within a parabolic curve during a strong trend.

The indicator generally works well in trending markets, but provides “whipsaws” during non-trending, sideways phases. A parabola below the price is generally bullish, while a parabola above is generally bearish.

Stochastic Oscillator
The stochastic oscillator is a technical analysis oscillator (or two oscillators) showing the latest closing price in relation to the trading range of the past N days. This concept is unrelated to a stochastic in mathematics or statistics.

Two oscillator lines are calculated, called %K and %D, each ranging from 0 to 100. %K is the closing price within the past N-days trading range, ranging from 0 when the latest close is a new N-day low, up to 100 for a new N-day high,

The usual “N” is 14 days, ie. a fortnight’s worth of past data, but this can be varied. Levels near the extremes 100 and 0, for either %K or %D, indicate strength or weakness (respectively) with prices making or approaching new N-day highs or lows.

Levels above 80 and below 20 can be interpreted as overbought or oversold, but not on their own, only with other factors. It is recommended to wait for a return back through those thresholds, ie. when the oscillator goes above 80, wait for it to fall below 80 before selling; or vice versa on going below 20 wait for a rise back above 20 before buying; which in effect means waiting for a bit of a reversal. Or alternately levels 80 and 20 might be traded when some other technical indicator suggests a non-trending market.

%D acts as a trigger or signal line for %K. A buy signal is given when %K crosses up through %D, or a sell signal when it crosses down through %D. Such crossovers can occur too often, and to avoid repeated whipsaws one can wait for crossovers occurring together with an overbought/oversold pullback, or only after a peak or trough in the %D line.

Some traders consider the basic %K and %D too volatile, giving too many signals and too many whipsaws. This is addressed by forming “slow” stochastics. %K values are first smoothed by a 3-day simple moving average, and then the %D formed by a further 3-day SMA on that. This “slowed” %K is the same as the “fast” %D, but it’s easiest just to think of the slow form as first
inserting an extra smoothing.

%K is the same as Williams %R, though on a scale 0 to 100 instead of -100 to 0, but the terminology for the two are kept separate.

Bollinger Bands
Bollinger Bands is a technical analysis tool which evolved from the concept of trading bands, and can be used to measure the relative highness or lowness of a currency pair price.
Bollinger Bands consist of:

• a middle band being a N-period simple moving average
• an upper band at K times a N-period standard deviation above the middle band
• a lower band at K times a N-period standard deviation below the middle band
Typical values for N and K are 20 and 2, respectively.

The bands give a reliable visual picture of a stock’s price volatility. No particular significance,
however, should be attached to a price touching the upper or lower band, as Bollinger himself has pointed out. These occurrences should be considered in relation to other factors before making investment decisions.

It is of interest to note that faulty interpretation of a price touching or breaching a band based on incorrect statistical assumptions has become so widespread that some Forex traders now use these events alone as trading signals and by so doing may have unwittingly injected significance into these band-touching events that would otherwise be absent.

When the bands lie close together a period of low volatility in the currency pair is indicated. When they are far apart a period of high volatility in price is indicated. When the bands have only a slight slope and lie approximately parallel for an extended time the price of currency pair will be found to oscillate up and down between the bands as though in a channel. When this behavior is found to regularly repeat in conjunction with a fairly steady broad market, a Forex traders may, with some validity, use a touch or near touch of the upper or lower band as an indication that a the price is nearing the limit of its trading range and therefore a price reversal is probable.

SOURCE: Part of this article was taken from Wikepedia in accordance with their GNU Free Documentation License.