Everything you need to know about Forex Indicators....
When you first delve into the world of forex trading you’ll no doubt be inundated with many different methods and techniques. Even for experienced traders some of these can be difficult to get their head around, so it is no wonder that so many newcomers get confused and aren’t sure which are the best methods to use. In reality there are just four indicators that any forex trader must be familiar with in order to easily identify trading opportunities: Moving Average, RSI, Stochastic and MACD - if you can master these then you’ll be well on your way to becoming a forex trading pro.
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It’s a well known fact that forex traders have the tendency to overcomplicate things when they take their first steps into the world of forex trading. The reason for this? More often than not because they feel that a complex trading system/method is required for success, and that if simple strategies were effective then everyone would use them and be successful. However, once a trader has a few years under their belt they will often come to the conclusion that the simplest strategies are more often than not the best due to the fact that they can be implemented quickly and easily, and with little or no stress. One very simple strategy is to use what are called ‘indicators’, and this article we will look at the four main forex indicators that traders can utilise on the forex market.
Moving Averages: Moving averages make it a lot easier for those trading to find opportunities in the direction of the major trend. When the market is trending upwards the moving average can be utilised to correctly figure out the trend and then the best time to buy or sell. ‘What is the moving average?’, you’re probably wondering. In short, it measures the average price of a currency pair over a given timeframe (usually 200+ days).
RSI: This stands for ‘Relative Strength Index’ and aids traders in identifying when currency is overbought or conversely oversold. Those traders that prefer to buy low and sell high may garner the most benefit from an oscillator such as RSI. In addition, RSI can be used in both ranging and trending markets to identify the best entry and exit prices. RSI will have a value of between 0 and 100, with 100 deemed as being overbought and 0 deemed as being oversold.
Stochastics: Like RSI, Stochastics are also an oscillator that can assist traders in finding both overbought and oversold environments (usually resulting in a reversal in price). Stochastics do differ from RSI in the fact that it has two lines as a signal to entry (%K and % D). To identify a sound buy signal a trader must simply look for the %K line to cross above the %D line.
MACD: This stands for ‘Moving Average Convergence & Divergence’ and is often referred to by traders as the daddy of oscillators due to the fact that it shows visual displays of moving averages, so spotting alterations in momentum becomes a far easier task. As with most indicators, MACD is best used in conjunction with an identified trend or a range-bound market. As soon as a trend has been spotted the best course of action to take is to take crossovers of the MACD line in the direction of the trend, and when a trade has been entered into simply set stops below the recent price (pre-crossover) and implement a trade limit at double the amount that has been risked.