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The Market Knows Everything: Dow Theory

charlesdowCharles H. Dow (Nov. 6, 1851 - Dec. 4, 1902) developed his remarkable market theory while living a colorful life as a newspaper reporter, financial writer, broker, analyst, and editor. He is a father of the modern technical analysis of forex. Technical analysis is a controversial set of methods for forecasting the forex market based on the historical price and volume combined with the investor sentiment.

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Forex Momentum Indicator

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Momentum is an oscillator designed to measure the rate of price change. It is defined by the net difference between the current closing price and the oldest closing price from a predetermined period. The indicator is easy to use and can be adopted right away by beginners of forex as well as by amateur players.

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The Parabolic System (SAR)

forex_notes_buttonThe parabolic forex trading system is a stop-loss system based on price and time designed to overcome disadvantages of the other trend-following systems.

The name of the system is derived from its parabolic shape(quadratic function in mathematics) which follows the price gyrations. On the chart below it is represented by a pieces of dotted lines. When the parabola is placed under the price, it suggests a long position.

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Moving Average Convergence-Divergence (MACD)

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The moving average convergence-divergence (MACD) oscillator, developed by Gerald Appel, is built on exponentially smoothed moving averages. The MACD consists of two exponential moving averages that are plotted against the zero line. The zero line represents the times the values of the two moving averages are identical. In addition to the signals generated by the averages' intersection with the zero line and by divergence, additional signals occur as the shorter average line intersects the longer average line. The buying signal is displayed by an upward crossover, and the selling signal by a downward crossover.

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Envelope Model as a Price Filter

The envelope model serves as a price filter. It consists of a short-term (perhaps 5-day) closing price based moving average to which a small percentage (2 percent is suggested for foreign currencies.) are added and substracted.

The two winding parallel lines above and below the moving average will create a band bordering most price fluctuations.

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