Technical analysis on forex markets- MACD and RSI provides a clear and practical guide to using two of the most effective tools in trading: the MACD and the RSI. Instead of relying on guesswork, you’ll learn how to apply these indicators to identify market trends, measure momentum, and spot potential reversals with confidence.
Introduction
The ability to analyze price action is one of the most important skills for traders in the foreign exchange market. This Technical analysis on forex markets PDF provides a clear and practical guide to using two of the most effective tools in trading: the MACD and the RSI. Instead of relying on guesswork, you’ll learn how to apply these indicators to identify market trends, measure momentum, and spot potential reversals with confidence.
Inside the guide, you’ll discover how the MACD helps traders understand shifts in momentum, generate entry and exit signals, and confirm the strength of ongoing trends. You’ll also learn how the RSI highlights overbought and oversold conditions, allowing you to anticipate corrections before they happen. Combined, these tools offer a powerful framework for making informed trading decisions.
What makes this Technical analysis on forex markets PDF especially useful is its step-by-step approach. Each concept is explained with simple examples, making it easy to understand even if you’re new to technical analysis. Whether you aim to refine your entries, reduce false signals, or build a disciplined trading plan, this ebook will equip you with practical skills to navigate the forex market more effectively.
Excerpts
For many years, technical analysis has been a topic of discussion regarding its contribution to
rational investment decisions in financial markets. In an era where computational power is
greater than ever and so many market analysis tools have been developed, one may question if
the least sophisticated indicators, widely used in the past, remain relevant to current traders or
if, on the other hand, their ability to predict investment opportunities lost their value. In this
empirical study, we assess the individual performance of Moving Average
Convergence/Divergence (MACD) and Relative Strength Index (RSI) in the Forex Market,
specifically on the top five currency pairs currently traded, namely, USD/EUR, USD/JPY,
USD/GBP, USD/AUD and USD/CAD, using daily closing prices from January 1st, 2009 to
December 31st, 2018. Based on the signals collected from the tested indicators, we simulate
long and short orders using a predetermined capital amount in order to assess the overall
performance and accumulated profitability of each indicator. We conclude that, for both
indicators, the results are ambiguous as they differ depending on the currency pair or the period
for which they are applied to. Therefore, it is not possible to confirm that these tools can
systematically outperform the market indicating profitable decisions in the covered context.
The ability of technical analysis to generate rational, well-informed and profitable investment
decisions in financial markets is a topic far from having a consensus view.
Many argue that technical analysis does not add value to investment decisions since they defend
that markets are fully efficient and, therefore, there is no misalignment between price
adjustments and the available information. Therefore, the opportunity to identify investment
opportunities through the study of historical prices or trends is null. On the other hand, others
argue that technical analysis is a useful tool for any investor and should be used exclusively or
in combination with fundamental analysis in order to take advantage of as much information as
possible and, thereby, outperform the market, in an attempt to anticipate asset price adjustments.
The foreign exchange market is the most liquid financial market and where the largest daily
volume of transactions occurs and, therefore, where the investment decision process is
particularly challenging due to its dynamic profile.
The objective of this empirical study is to evaluate if MACD (Moving Average
Convergence/Divergence) and RSI (Relative Strength Index), two of the most applied and wellknown tools of technical analysis, are still relevant in the current context of foreign exchange
markets (Forex), given all the computational power available to investors nowadays,
particularly when investing in the currency pairs with the highest transaction volumes in the
market, namely, the U.S. Dollar versus Euro, Japanese Yen, British Pound, Australian Dollar
and Canadian Dollar.
We start this study by presenting an overview on the subjects of technical analysis and Forex.
In that sense, we cover the definition of technical analysis and forex, their purpose and a brief
history from their creation until their role in financial markets nowadays, including the most
important players and events in their development and the main studies performed on the
matters.
After the introduction of the topics covered, we present the hypotheses tested in this empirical
study and the details of the data collected for that purpose.
Through the simulation of trading decisions aided by the two analysed indicators, we determine
if the signs of these tools actually spot triggers for the beginning of long and short positions
with positive trading results when comparing to a Buy and Hold strategy (B&H). To do so, we
use a fictitious starting capital amount that is invested exclusively according to the tools’
indications over a defined period. After that period, all gains and losses are summed resulting
in a net gain or loss in relation to the amount of the final capital if the B&H strategy is followed.
The main results are then discussed in a detailed presentation of the impact of each indicator on
each of the currency pairs studied.
In the end, we conclude that the results are ambiguous as they diverge depending on the
currency pair or the period studied. Thus, we cannot confirm that these tools can systematically
outperform the market indicating profitable decisions in the covered context.