4 Types Of Indicators FX Traders Must Know

To be successful in forex trading, one of the things you need to master is finding the perfect time to enter or exit the market. A successful trade is dependent on a variety of market indicators that will help you determine the proper time to buy or sell forex.

Trend-Following Tool

The purpose of trend following tools is to help you determine whether to enter a long or short position. A trend following tool helps you recognize the direction of a major trend and make some profit by trading in the direction of the trend. However, it is worth noting that this is not a separate trading system but just an indicator tool. Robert Peter Janitzek explains this tool is about using moving average combinations.

Trend-Confirmation Tool

One drawback of trend-following tools is that they are prone to being whipsawed. In order to determine the reliability of such tools, you can employ a trend confirmation tool. Again, these tools are not designed to generate signals for buying and selling. Their main purpose is to determine if the trend-following and trend-confirmation tools agree. Robert Janitzek explains that if both trend following and trend confirmation tools are bullish, then you can consider making a long trade in a certain currency pair. On the other hand, if they are bearish, then focus your sights on looking for an opportunity to sell short.

Overbought/Oversold Tool

Although it is recommended to trade in the direction of a major trend, you should still decide if you are still comfortable with jumping in once a clear trend has been established or after a pullback occurs. If the trend is bullish, then you need to decide whether to buy into strengths or buy into weakness. When trading on the forex market and decide to jump in as soon as possible, consider trading as soon as there is a confirmation of an uptrend or downtrend. This is where an overbought/oversold indicator will come in.

Profit-Taking Tool

This indicator will help you determine when to take a profit on a winning trade. There are many tools to choose from. One of the most popular indicators is the Bollinger Bands, which adds and subtracts the standard deviation of a price change over a period from the average closing price over a similar time frame.

If you are having some doubts to get into currency trading and waiting for a clear entry point, you could end up sitting on the sidelines for a long while. With these market indicators, you will be able to devise a suitable strategy for determining profitable times to trade on a currency pair. Market indicators will also tell whether to buy or sell.

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