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If you are a forex trader, you are probably aware of the monumental profit potential of trading the foreign exchange market. Trading this large market is really like trading the global economy itself, and the large profits come from taking advantage of something called ‘leverage.’

Let’s state that you noticed that the real estate market in a particular area was really booming, so you wanted to work with a bank to acquire as many properties as doable in this area. The bank told you that instead of paying for all the homes yourself, you would only need to pay 1% and the bank would pay the other 99%. Not bad, eh?

This is an example of leveraging money, and your forex broker will grant to do the same thing while you are making trades. The most common leverage level is 100:1 or 1%, meaning that with $1,000 you could potentially trade up to $100,000.

But all of this money is of no use if you do not know how to place profitable trades, so this day we will cover the basics of a favourite form of picking trade opportunities called ‘technical analysis,’ as well as cover a few of the most widely used technical indicators.

In technical analysis, we are only concerned with the numbers. We are concerned with only the ‘what’ of the exchange rate prices and not the ‘why.’ We do not care about why the currency rate is at a new high or low, but only about the steps that the price fluctuations took to get there.

A good forex technical analyst can look at a chart of price history and see potential trading opportunities, as well as absolutely separate any emotions such as fear or greed from stated trading opportunities. This capability of looking at your money without emotion can be very difficult to learn, but it is really the key to successful technical analysis and making profitable trades.

The three technical indicators we will cover this day are Moving Averages overlaid onto price data, the Relative Strength Index, and Moving Average Convergence/Divergence.

First, let’s speak about how these indicators will actually look when they are set up on the chart. The moving average itself will be on top of the candlesticks or bars that give the price data, and the MACD and RSI will be below the price data on a small separate graph.

The RSI will give you a good intent of the strength of a certain trend, as well as the current overall volatility of the market. This indicator will show you the ‘relative strength’ (duh!) of the market at the present moment. In setting your RSI indicator on your chart, two of the most favourite periods are 14 and 21.

What this whole ‘time period’ business means is that the indicator will track back a certain number of bars or candlesticks from the present one (14 or 21 in this case), and the indicator will be based on that data. When the RSI is at a high value (usually above 70), this can indicate high volatility, and a good time to trade is when the RSI is climbing.

Next, we will speak about moving averages, and there are two different types: one that is one top of price data, and one that is separate from price data.

Both indicators, simply called a moving average (on data) or a MACD (off data), really try to tell you the same basic thing, and that is whether or not the current price action is significantly different from current price action.

If the way the prices have been moving within the last hour is much faster than how they have been moving early that day (if you had maybe 30-minute bars or candlesticks), this is definitely a potential trading opportunity.

To refer forex trading opportunities with a regular moving average (you might want to try a period of 10-20 with this), you will see the price data cross over the moving average line and keep going in that same direction. This shows you that this move is different from the way the market has recently been moving, and can be a good chance to make some money.

The MACD uses the same basic concept, but you have a short-period and a long-period moving average instead of a moving average overlaid on price data. The CD in MACD stands for convergence/divergence, and this indicator will show you short-term price action compared with long-term price action.

The periods of apiece moving average on the MACD are generally 12 and 26, and the same basic concept applies: if short-term action is significantly different from long term action (divergence in the two averages), this can be a profitable trading opportunity.

Is technical analysis really necessary for someone who is interested in swing trading? The beauty of swing trading is that it grants you to get in the market long enough to make a profit but get out soon enough before you suffer any huge draw downs due to unexpected market activity. Many new traders are unsure as to how much technical or fundamental analysis they should use. Can a swing trader be successful without any technical analysis? Likewise can they be successful with no fundamental analysis? If you want to be the ideal that you can be at trading then it is strongly advised that you mix a tiny of both into your swing trading so you can get the ideal of both worlds. Both technical and fundamental analysis play a major role in how swing traders make decisions and manage their trades regardless of the market they purchase and sell in.

Fundamental plays an important role in swing trading because the performance or expected future performance of a country’s economy can have a major impact on the value of its currency. Perhaps the biggest impact comes from a country’s interest rate. Interest rates can have a major impact on the value of a currency and this is one thing that professional swing traders constantly keep an eye on. When all things are equal, if a country’s interest rate is higher than another, the value of its currency should appreciate. The higher interest rate attracts foreign investment who must purchase the currency to enjoy the high interest rate level. This causes demand for the currency and hence explains why swing traders like to keep an eye on interest rate levels. They can greatly affect the value of a currency in both the short term and long term.

Technical analysis is also something that should not be neglected. Technical analysis is all about the analysis of charts and what they are telling us. This includes a wide varying number of things and can be as easy as examining the trend to using or plotting information on your chart via an indicator. Some traders might also implement the use of chart formations in their technical analysis. Technical analysis will most likely play a larger role than fundamental in your swing trading, but it should not absolutely dominant any market analysis you do before opening and closing trades.

Neither fundamental nor technical analysis should be the dominant player in any swing traders trades. Each style of analysis offers a swing trader critical information about the market and can greatly improve their chances of being a successful trader in the long run. Fundamental analysis gives traders a huge picture of market and the most important thing to keep an eye on is the level of current and future interest rates. These rates can greatly affect the value of a currency and will help give you an intent of where the market might be going. Technical analysis is necessary to refer the trend and place trades. Both styles of analysis work hand in hand with apiece offering a one-of-a-kind appearance and information about the market.