People keep on asking what is the best technical indicator for the currency market. There are infact a host of different technical indicators developed by maverick traders. Each technician wants to leave his or her mark on the trading world by leaving a technical indicator. So what is the best technical indicator? Is it the moving averages, the exponential moving averages, the bollinger bands, the relative strength index or what? So what is the Ultimate Technical Indicator? Well, to tell you the truth, there is one indicator that will always stand above the rest. And that indicator is the price action. You see all these technical indicators are formulas that are applied to the price action to get a trading signal. Now, in the currency market, there is no absolute price. However, currencies are priced relatively in terms of other currencies. So we may talk of USD priced relative to GBP or Euro priced relative to USD. Now this might be confusing for those traders and investors who have been trading other markets where prices are always absolute. Understanding the concept of support and resistance is very important for any serious trader. Now think of th support as the floor under your feet. When you hit a ball on the floor, it will bounce back and return to you. Support works in the same way in the market. You can take it as a sort of a floor in the market. In the same way resistance is just like the ceiling of a room. When you throw a ball up, it will hit the ceiling and bounce back in your hands. Resistance works in the same way in the market and can be taken as a ceiling in the market where price action bounces back. Now there is a difference between how small traders like you and me and the large traders or what you should call large players like the big banks, hedge funds, money market funds and other trade currencies. Now as a small trader, we have a few lots to trade that we tend to trade all at once. But in case of these large players, the order size may be of so large that it can affect the currency price itself. But when a hedge fund or a large bank enters the trade, they usually have large order size. They don't want to move the market and drive the price by too much buying or selling. So they enter the market gradually. In case of a large buyer, it might drive the price high. So instead of placing one single large order, these big players, enter the market gradually. When the price reaches the support or the desired entry level of these big banks or hedge funds, they enter the buy order. Similarly in case of a large seller, a single order might drive the price still lower. So a large seller will always enter the market gradually. This way, you see the price bouncing back and forth between support and resistance.
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