Page 17 - NOT FOR SELL SIBUSISIWEFXupdate_Neat

Support and Resistance in Momentum Markets

Another way to use support and resistance is to trade outside the range, in other words, to
anticipate a breakout. This involves placing orders to Ask above resistance and to Bid below
support. The rationale is that the market will gain momentum once it breaks out of the range, thus
by placing orders just below or above of support or resistance, traders may be able to profit if the
market continues to move out of the range and they are on the right side of the market. Momentum
trading is a bit counter-intuitive, as it involves Asking at a higher price and Biding at a lower price.

Below is a chart that illustrates the concept of momentum trading?

Tools in Technical Analysis

Oscillators

Oscillators are a type of mechanical trading tool that are used to indicate when a currency pair is
overbought or oversold. A popular oscillator is the Relative Strength Index.

Relative Strength Index

The relative strength index (RSI) measures a currency pair’s strength relative to its recent past
performance. As the indicator is front-weighted (more importance is given to the most recent data),
it usually provides a better velocity reading than other oscillators. RSI is less affected by sharp
movements and filters out a lot of “noise” in Forex market. Many traders also use this indicator as a
substitute for volume confirmation, since the huge amount of traders in the Forex market from all
over the world make real-time volume reporting impossible. RSI levels are between 0 and 100. Most
traders use 30 as an oversold condition and 70 as an overbought condition, although some traders
may use 20 and 80. When choosing the settings for RSI, traders should typically use the default time
period of 14, since that is what the market as whole tends to look at.