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Inertia Forex Technical Analysis and Inertia Forex Trading Signals

Developed by Donald Dorsey and was originally used to trade Stocks & Commodities market, before currency traders took it and started trading the Forex market using this indicator.


Dorsey chose to name it "Inertia" because of his interpretation of the market trend. He claimed that a Forex market trend is the overall result of inertia and thus it takes more momentum for a trending market to reverse its direction than to continue moving in the same direction. Therefore, a Forex trend is the measurement of market inertia. This is an oscillator that uses the scale of zero to a hundred. Signals are generated using the 50 level center line crossover method.

 

Inertia Technical Indicator - Forex Trading Indicator



In physics, the term Inertia is defined in terms of mass & direction of motion. Using the standard technical analysis, the direction of motion of the trend can be easily defined. However, the mass cannot be easily defined. Dorsey claimed that the volatility of a financial instrument may be the simplest & the most accurate measurement of inertia. This theory led to the use of the Relative Volatility Index (RVI) as the basis to be used as a trend indicator. Therefore Inertia is comprised of: RVI smoothed by a linear regression.

 

 

Forex Technical Analysis and Generating Forex Trading Signals

When it comes to trading the currency market using this indicator, the signals generated are fairly simple to interpret. Below are two examples illustrated using currency trading charts showing how buy and sell signals are generated using Inertia.


Upward Trend - Bullish Buy Signal

If the Inertia is above 50, positive inertia is indicated, this therefore defines the long-term Forex trend as upward as long as the indicator remains above 50. When it crosses to levels below 50 then this is interpreted as an exit signal. The chart below shows an example of how a buy signal is generated.

 

Inertia Indicator Upward Trend - Bullish Forex Signal

Upward Trend - Bullish Signal

 

Downward Trend - Bearish Sell Signal

If the Inertia is below 50, negative inertia is indicated,this therefore defines the long-term forex trend as downwards as long as the indicator remains below 50. If it goes above 50 then this is interpreted as an exit signal. The currency chart below shows how a sell signal generated.

 

Inertia Indicator Downward Trend - Bearish Forex Signal

Downward Trend - Bearish Signal

Forex Market Sentiment

The EURUSD is at a major support level, Open an account and start trading EURUSD which is oversold and at a major support level: Read The Article "Support and Resistance levels"

Another reason to start being bullish on the EURUSD and EURJPY is Risk Appetite vs The Risk Averse sentiment used when trading high yielding currencies vs the US Dollar and the Japanese Yen when world economies start reporting data that is supporting economic growth: Read The Article "Risk Appetite vs The Risk Averse"


Eurozone Economic Growth Gains Momentum in November - Eurozone economic growth accelerated to its fastest pace and was at an all-time high, order books grew and factories were prompted to add more workers and raise the prices of their goods as the economic environment in Europe grew the fastest as shown by economic data – November Composite PMI for manufacturing and services grew to the strongest in 18 months and was at an all-time high of 54.1, up from 53.3 in October. There are two PMI data reports - one for manufacturing and the other one for services. The PMI for manufacturing was at an all-time high of 34 months and rose to 53.7 in November while that of services rose to an all-time 11 months high of 54.1; Marking a strong expansion in economic growth and signaling that the recovery in Europe is continuing to gather momentum thanks to the €1.7 trillion quantitative-easing program being carried out by ECB in Europe. IHS Markit has said that companies are on boarding new staff at the fastest pace ever since 2008, as the prices of goods increased the most in five years as companies continued to pass the production cost to their consumers – the November PMI showed the steepest monthly increase in business activity with plenty of signs that the economic growth will continue to accelerate as the inflation in Europe continues to intensify steadily. Open an account and start trading EURUSD and EURJPY today.


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First OPEC Deal on Oil production cut in 8 years fuels more risk appetite: Open an Account Today - Don't Miss Out on the trades


Read The Articles: Eurozone Economic Growth Gains Momentum in November - Fueling Risk Appetite in FX trading


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