• Futures are a microcosm of the OTC market
  • Volume and open interest metrics provide clues for price direction
  • Momentum indicators are powerful technical tools at times
  • Technical analysis can fail at times

Charts are useful tools for investors and traders as they provide insight into herd behavior. during a book written in 2004, author James Surowiecki explained how crowds make better decisions than individuals. Markets are embodiments of Surowiecki’s thesis because the current price of an asset is that the level where buyers and sellers meet during a transparent environment.

When it involves the worldwide exchange market, buyers and sellers of currencies determine the rates of 1 exchange instrument versus others on a real-time basis. At an equivalent time, governments manage the extent of currency volatility to take care of stability. Technical analysis are often particularly useful within the currency markets as technical levels can provide clues about levels where government intervention is probably going to occur.

Technical analysis includes support and resistance levels where currency pairs tend to seek out lows and highs. At an equivalent time, price momentum indicators often signal where exchange rates are running out of steam on the up and therefore the downside.

Technical analysis can breakdown sometimes when Cygnus atratus events occur.

Futures are a microcosm of the OTC market

In the world of exchange , the OTC market is that the most liquid and actively traded arena. The over-the-counter market may be a global and decentralized venue for all aspects of exchanging the currency of one country for another; it’s also the most important market within the world. In April 2019, the typical trading volume was $6.6 trillion per day. The over-the-counter market operates day per day, apart from weekends.

Futures markets for currency pairs are smaller, but they reflect the worth action within the over-the-counter market . When it involves technical analysis, the futures exchange provides a window into the worth trends and overall state of the strength or weakness of one currency versus another.

Volume and open interest metrics provide clues for price direction

The dollar versus the euro currency pair is that the most actively traded exchange relationship as both exchange instruments are reserve currencies.

Source: CQG

The weekly chart of the dollar versus the euro derivative instrument displays the worth action within the currency pair since late 2017. The bar graph on rock bottom reflects the weekly volume, which is that the total number of transactions. the road above volume is that the open interest or the entire number of long and short positions.

When volume and open interest are rising or falling with the worth , it tends to be a technical validation of a price trend during a futures exchange . When the metrics decline with rising or falling prices, it often signals that a trend is running out of steam, and a reversal might be on the horizon. Volume and open interest are two technical metrics that aid technical traders trying to find signs that a trend will continue or change.

Momentum indicators are powerful technical tools at times

StochaStochastics and relative strength indices can provide a window into the general power of a trend during a futures exchange .stics and relative strength indices can provide a window into the overall power of a trend in a futures market.

Source: CQG

Beneath the weekly price chart, the slow stochastic is an oscillator that aims to quantify the momentum of a price rise or decline. Stochastics work by comparing closing prices with price ranges over time. the idea behind this technical tool is that prices tend to shut near the highs in rising markets and near the lows in falling markets.

A reading below 20 indicates an oversold condition, while over 80 may be a sign of an overbought condition. On the weekly chart of the euro versus the dollar currency pair, the reading of 31.42 indicated that the stochastic oscillator is falling towards oversold territory during a sign that the downtrend might be running out of steam.

The relative strength indicator compares recent gains and losses to determine a basis or the strength of a price trend. A reading below 30 is that the sign of an oversold condition, while an overbought condition occurs with a reading above the 70 level. At 45.55 on the weekly dollar versus euro chart, the indicator points to a neutral condition within the currency pair.

Technical analysis can fail at times

Technical analysts search for areas of subsidy and resistance on charts. Support may be a price on the downside where a market tends to seek out buying that forestalls the worth from falling further. Resistance is simply the other , because it is that the price on the upside where a market tends to experience selling that forestalls it from rising further. When a price moves below support or above resistance, it often signals a reversal during a bullish or bearish price trend.

Technical analysis isn’t perfect, because the past isn’t always a perfect indicator of the longer term .

Source: CQG

The chart of the currency relationship between the US and Australian dollar shows that the worth broke down below technical support and experienced a spike to the downside. the worth movement clothed to be a “blow-off” low on the downside that reversed after reaching a significantly lower cost .

Technical analysis provides a roadmap of the past within the go after insight into the longer term . Many market participants use technical analysis to form trading and investing decisions, which frequently creates a self-fulfilling prophecy as a herd of transactional activity can create or impede a price trend. Technical analysis may be a tool that exchange traders use to project the trail of least effort of exchange rates.

Some of the foremost influential participants within the exchange markets are governments. Historical price volatility in exchange markets tends to be less than in most other asset classes because governments work independently or together, at times, to supply stability for exchange rates. Therefore support and resistance levels tend to figure overflow time.

This article was originally posted on FX Empire

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