A bullish indicator provides a trader with a signal that the exchange rate for a currency pair will rise in the future. If subsequently seen, it would result in a bull market for that currency pair.
Forex traders will often look for several bullish indicators to confirm their entry into a long position in order to profit from the signaled rise in the exchange rate.
These indicators should give a similar sense of both timing and an upward market direction in order for a long trade to be initiated. Also, a stronger trade entry signal is given when more bullish indicator signals can be identified.
Bullish indicators can be used to signal a falling movement in price action and hence support the initiation of a long position when trading. Some of the more common bullish technical indicators used for trading signals are listed in the following sections.
Bullish Chart Patterns
The following are some of the more reliable bullish chart patterns:
- Bullish continuation chart patterns like rising flags and pennants.
- Bullish reversal chart patterns like descending wedges, head and shoulder bottoms and double bottoms.
- Bullish engulfing patterns seen on the candlestick charts.
- A trend line which has shows a bullish breakout to the upside.
Bullish Divergence in Momentum Indicators
Bullish regular divergence is seen when a new low in the exchange rate is not supported by a new low in the indicator. Bullish hidden divergence is seen when a new high in an indicator is not accompanied by a new high in the exchange rate.
Traders often look for these bullish signals in key momentum indicators like the:
- Relative Strength Index or RSI
- Stochastics Oscillator
- Moving Average Convergence-Divergence or MACD indicator
Also, traders might look for bullish moving average crossovers where the short term average crosses above the long term average.
Bullish Support and Resistance Factors
Traders should also take into account the proximity and strength of key support and resistance levels determined by previous market reversals and other technical considerations. Bullish signals would include:
- Nearby support levels that seem relatively strong.
- Distant resistance levels that seem relatively weak.
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