Often while trading the currency market, investors hear about some traders going broke. While such news may hamper the confidence of other newbies, these incidents provide some important learning curve. If one studies these mishaps carefully, one will see that most of these mishaps involve ignorance towards indicators and use of inadequate data while performing trades. Therefore, it becomes exceedingly important to know about the importance and benefits of a Forex currency indicator.
Currency indicators – why to use them:
The Forex market is all about timing. Accuracy defines profits and a few wise decisions can see your trading account soar above the rest in no time. So, to attain this immaculate timing and accuracy, one needs to ponder upon a Forex indicator.
Indicators provide alerts to traders on a regular basis on the support and resistance levels of the market. More important, it makes investors aware of any volatile currency forecast that has the capability to move the market in a significant manner. These Forex currency indicators are of various types. Depending on your requirements, you must opt for one.
Simple Moving Averages or SMAs:
These are the oldest and perhaps most widely used indicators of the Forex market. They strive to smoothen out the inconsistencies and rough points that exist in a currency’s price trend. This in turn provides investors with profitable entry and exit points that they can use to close their trade.
Simple Moving Averages calculate price trends by focusing on the mast few closing prices of a currency pair. This refers to a close analysis of historical data; hence back testing. Normally, one can obtain an optimum reading by plotting a 5-day SMA. Experts recommend using it for almost every strategy.
RSI (Relative Strength Index):
The Relative Strength Index or RSI finds use in figuring out overbought and oversold condition of this market. It consists of an oscillator that deflects between the 0 and 100 mark. This Forex currency indicator takes 30 and 70 to be its threshold marks. Any market reading that goes above 85 receives the tag of overbought condition. On the contrary when market reading falls below 15, it receive the tag of oversold condition.
RSI also helps in determining bearish and bullish trends of a market as well as currency pair. For instance, when overbought condition occurs, it means that prices are low and investors are going long with all their resources. The opposite represents a bullish trends where every trader looks their close their position on a profitable note.
Stochastic in forex:
This indictor also represents an oscillator that roams between 0 and 100.These Forex currency indicators focus on alerting traders about trend reversals and hence support counter trend trading. This strategy although highly risky is highly beneficial in attaining huge profits. Stochastic does so by figuring out a trend momentum on the basis of a price range over a given period.
So, getting hold of the correct Forex currency indicator is essential in giving your trading account a head start. To do so, get in touch of a reliable broker today and start investing in this currency arena.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.