fbpx
【Important Notice】The rate distribution and trading activities on Rakuten FX has been fully recovered. We sincerely apologize again for the inconvenience caused.

Technical analysis

WHAT IS A MOVING AVERAGE?

Moving Average (Moving Average, MA) is a statistic conducted by the continuous average values over a specific period of time.

Moving average is one of the most common technical indicators. It provides an overall trend of price and forecasts upcoming trends and the possibility of turning trend.  It is well accepted among traders given its simple application.

TYPES OF MOVING AVERAGE

For the length of period, it can be divided into three kinds:

Short-term:  5 days and 10 days

Medium-term: 20 days and 50 days

Long-term:  100 days, 200 days, or even 250 days

 

The shorter the period, the smaller the lag. In other words, it reflects recent changes in the trend faster. For example, a 10-day moving average is closer to the recent price than a 250-day moving average.

Conversely, the longer the period, the greater the lag. It is mainly used to showcase a long-term trend.

How do I apply A MOVING AVERAGE?

  1. Determining price trendsMoving Average offers investors a macro reference for determining whether the market is bullish or bearish. Normally, analysts will see 200-day moving average as the bull-bear demarcation line.If the price rises over the 200-day moving average, it is seen as a bullish signal. Conversely, if the price falls through the 200-day moving average, it is seen as a bearish signal.If the price continues to stay above the 200-day moving average, an upward trend is formed and investors can look for possible buying opportunities.Conversely, if the price remains below the 200-day moving average, a downward trend is formed and investors can seize the chance to sell.

Example:

As shown in the USD/JPY Daily Price Chart above, price is below the 200-day moving average at the beginning and creates a downward trend. When the price rises and hits the 200-day moving average, there is a possibility of a turning trend. Afterwards, the price rises above the 200-day moving average and begins an upward trend.

  1. Gold Cross and Death Cross

    After figuring out the main trend of the market, it’s time to look for the entry chance. By doing so, we should look at the two different averages and find the intersections as entry signals.When the fast line (shorter period) rises over the slow line (longer period), that means the recent trend is breaking the long-term trend and creates a buy signa, which is the gold cross. Investors can confirm the turn of trend and enter.When the fast line (shorter period) drops below the slow line (longer period), that means the recent trend is breaking the long-term trend and creates the sell signal, which is the death cross. Investors can confirm the turn of trend and sell.

Example:

We add a 20-day moving average to the daily chart as the fast line and a 50-day average as the slow line.

When the 20-day moving average fast line rises above the 50-day moving average, the gold cross is formed. Investors can confirm the turn of trend and enter.

When the 20-day moving average fast Line falls below the  50-day moving average, the death cross is formed. Investors can confirm the turn of trend and sell.

THE DISADVANTAGE OF MOVING AVERAGES

Since the moving average needs to be calculated from the previous values, the results may be delayed. Besides, the longer the cycle, the greater the lag.  The market price may already react before the average reaches the highest/lowest point or a gold/death cross is formed. This hinders investors to react in time. Moving averages only provide a macro reference for investors. If investors need a more comprehensive analysis, other indicators have to be included.

What is the RSI ?

RSI, Relative Strength Index, is used to estimate the momentum of buyers and sellers, measure the magnitude of price changes and to determine whether the market is overbought or oversold.

The importance of RSI

If the buying momentum is strong, there is a greater opportunity of rise. On the contrary, if the selling momentum is strong, there is a greater opportunity of drop.

However, if we only rely on price changes to determine the market situation and ignore the process within, we may overlook the change in momentum.

 

For example, both 2 cases are also up 8% in 20 days. In different time, trends, orders and magnitudes can vary or even be completely different. (i.e. rise slowly, fall before rise, rise and then stabilize).

 

To apply RSI, apart from determining the up and down trend, you can also see the momentum of buyers and sellers.  If the momentum is stronger, the RSI value will tend to be more extreme.

How to interpret and apply RSI indicators?

The value range of RSI is from 0 to 100. Commonly, 50 is the demarcation line.

Value greater than 50: the buying momentum is strong, the rising magnitude is stronger.

Value less than 50: the selling momentum is strong, the dropping magnitude is stronger.

 

If price rises in large magnitude, the RSI value will be above 50.  The stronger the buying momentum, the greater the RSI value.

On the contrary, if price drops in large magnitude, the RSI value will be below 50. The stronger the selling momentum, the smaller the RSI value

If the market does not have a clear direction, the RSI value will stay around 50.

 

In addition, if the value goes to extreme, there will be overbought or oversold (Generally, >70 means overbought, < 30 means oversold), there is a chance to overturn.

 

Value > 70: When the price rises quickly, overbought appears. If buying momentum turns weak, there is an opportunity to turn downwards.

Value < 30: When the price drops quickly, oversold appears. If selling momentum turns weak, there is an opportunity to turn upwards.

^ Rakuten Securities was ranked as the world’s fourth largest retail forex broker by volume in Q3 2020 from Finance Magnates.
Ŧ Only available for clients who hold a Rakuten FX account.
¤ Fixed spreads are offered in Rakuten FX account during at least 95% of the time of the monthly core-time trading period (8am to 2am HKT of every trading day). However it is not guaranteed and it shall not apply to the extreme markets circumstances, include but not limit to low liquidity, high volatility, news events and public holidays. During extreme markets circumstances, spreads may widen beyond the offered spreads. Please always refer to the trading platforms for the most updated spreads.
ɞ Order execution rate is calculated based on the AS Streaming and Streaming trading orders in 10k or less order size with lower than 1 pip slippage setting in which were executed during the period between Jan 1 to Nov 1, 2017.
ʊ MARKETSPEED FX platform is the winner of “Online Forex Trading Platform” by Good Design Award in 2012.

To safeguard your trading account(s), you are highly recommended to set a strong password and change it regularly.

When executing customers’ trades, Rakuten Securities HK can be compensated in several ways, which include, but are not limited to: charging fixed lot-based commissions at the open and close of a trade, adding a markup to the spreads, acting as a counterparty in the transactions. As a result, Rakuten Securities HK’s interests may be in conflict with yours.

Rakuten Securities Hong Kong Limited (“Rakuten Securities HK” SFC CE Number: AIM232) is a wholly owned subsidiary of Rakuten Securities, Inc. (*) Rakuten Securities, Inc., one of the major online brokers in Japan, founded in 1999, is a subsidiary of Rakuten Group, Inc. (TOKYO: 4755).
The risk of loss in leveraged foreign exchange trading can be substantial. You may not be suitable as you may sustain losses in excess of your initial margin funds. Leverage can work against you. Placing contingent orders, such as “stop-loss” or “stop-limit” orders, will not necessarily limit losses to the intended amounts. Market conditions may make it impossible to execute such orders. You may be called upon at short notice to deposit additional margin funds. If the required funds are not provided within the prescribed time, your position may be liquidated. You will remain liable for any resulting deficit in your account. You should therefore carefully consider whether such trading is suitable in light of your own financial position and investment objectives. Do not speculate with capital that you cannot afford to lose. If you decide to trade products offered by Rakuten Securities HK, you must read and understand the information and disclosure provided by Rakuten Securities HK. Rakuten Securities HK may provide general commentary which is not intended as investment advice and must not be construed as such. Seek advice from a separate financial advisor. Rakuten Securities HK and Rakuten Group assumes no liability for errors, inaccuracies or omissions; does not warrant the accuracy, completeness of information, text, graphics, links or other items contained within these materials. Read and understand the Terms and Conditions on Rakuten Securities HK’s website prior to taking further action.
Information Security on Internet: To protect your privacy, do not access your trading account via public or shared computer or save your password locally in any computer or mobile device after logging in. Rakuten Securities HK will never ask you to send any of your personal information such as account number and password to us directly via e-mails.
(*)Company Registration ID (in Japan): Kanto Local Finance Bureau (Financial Instruments Firms) No.195

LIVE ACCOUNT TRY DEMO FOR FREE