Forex market usually seems erratic to new traders.
Oftentimes it feels as if your strategy is not working and it’s really hard to establish a trend. This is due to the fact there are different factors affecting price of a currency pair. Even if you perform a flawless technical analysis and risk seems really low, you still might lose a lot of money.
This is precisely why you will have to learn more about Forex trading indicators.
Indicators or signals help us establish patterns.
They tell trader when to buy or sell a financial asset ensuring high profit.
Please have in mind that the same indicator won’t work well in all conditions. Each signal is used to support different strategies and you need to know how to properly utilize them.
Here are some popular Forex trading indicators that will make your FX trades more profitable.
Simple moving average
Simple moving averages are one of the top tools for establishing trends.
Basically, it represents an average price of a currency pair during a period of time. If the same average persists over a longer period, this signifies that an asset has a high level of resistance and is less affected by market fluctuations.
If same averages persists for a longer time, it means that prices are stable.
However, if a long term average transitions into a short term average, it may signify a beginning of a new trend.
RSI or relative strength index is an oscillator that shows range of an asset. In other words, you can use it to determine when a currency pair is well above or below its standard price.
RSI is ideal for planning your next action as it shows you lowest and highest price levels.
When you check RSI chart, you can see the extreme point. Before you trade an asset, make sure that the price is returning back towards the trend and from extreme. Broker with enough experience can use these charts to maximize profits and determine optimal points of entry.
MACD is one the most complex signals that doesn’t only show you momentum of an asset but also tries to establish strength of this momentum.
It uses upward and downward lines. When your investment crosses one of these lines (goes above upper line or below lower line) it tells you that you should sell or buy the asset.
By using MACD trading indicator you have a system that allows you to trade practically without a loss.
Fibonnaci retracement is a planning tool that tries to predict market’s movements.
It uses a number sequence that is exponentially growing. In theory, after a major price movement, levels of support and resistance will change proportionality to this sequence.
Market will react to changes by following certain patterns and reacting accordingly.
Bollinger bands are a way of predicting volatility of an asset.
It uses simple moving average as a starting point and has two bands: upper and lower. Upper will show the highest points (when currency pair is overpriced) and lower will show the lowest points (when currency pair is underpriced).
Bands adjust to market volatility; if a market is very volatile they will be spread apart and vice versa. Anyway, they help trader establish extremes and as such, they help with projections.
My thoughts on Forex trading indicators
There are numerous signals that can tell us how price of an asset changed during a day or a week. Some of them are used to predict future movements. One of the best options is to check them all before making a trade; by using only one indicator you might go in a bad direction.
Price and action go hand in hand; once you find out the optimal price, you will pull a trigger on a trade. As such, these Forex trading indicators can provide a valuable assistance.
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