Forex trading is the buying and selling of currencies in a global market. It is a decentralized industry where traders interact over the counter. This market is huge and immensely liquid due to a trading volume which exceeds $5 trillion every day. Individual traders as well as major institutions are free to engage in this industry. It is also known as the FX market and is a core part of international business. That’s because goods and services bought or sold across borders require the exchange and transformation of currencies. Due to its size, volume and necessity, many people are attracted to trading in the Forex market. By utilizing elements such as currency pairs, bid and ask prices as well as the spread, they keep this market running all day, every day.
Every beginner Forex trader needs to know a number of indicators so as to trade and make profits in this market. Some of the best indicators that they should know include:
- The Moving Average
- The Slow Stochastic
- The Relative Strength Index (RSI)
- The Fibonacci Retracement
- The Moving Average Convergence & Divergence (MACD)
- The Bollinger Band
Read on to discover each one in detail.
The Moving Average
This indicator assists a trader to spot some opportunities that follow the direction of the general trend. If the Forex market is generally trending upwards, traders can use the Moving Average to identify the right time to buy or sell currencies. They can also multiply this indicator for the same purpose.
This indicator takes the form of a line on a chart which measures the mean price of a currency pair over some time such as 200 days. This is done so as to detect the overall direction of the pair. The Moving Average allows you to trade by relying on the momentum of a currency pair. Traders can buy when the pair is moving according to the chart and sell when it begins to move in the opposite direction.
The Slow Stochastic
This is an indicator that can be used to trade in Forex environments where the currency pairs are overbought or oversold. This form of activity in the pairs usually results in a reversal in their prices. The Slow Stochastic can be described as an oscillator. By monitoring the direction of the K line in relation to the D line, a beginner trader can identify the signal to buy or to sell a particular currency pair in an open demo account.
The Relative Strength Index (RSI)
This is a simple and very helpful Forex market indicator. It is an oscillator by nature. Therefore, it can help you to discover if a particular currency pair is overbought or oversold. This sort of environment normally leads to a reversal. Hence, you can identify the opportunity to buy or sell depending on the Relative Strength Index (RSI). The traders who like to buy currency pairs low and then sell them high can use this index successfully. This indicator is quite versatile. Hence, it can be used to identify entry and exit prices in a ranging market.
The Moving Average Convergence & Divergence (MACD)
This is a highly effective indicator for beginner traders. It is a major oscillator. This means that it can be applied in trending or ranging markets. By using Moving Averages, this indicator can show adjustments in momentum from a visual point of view. A MACD chart will display either an upward or a downward bias of a particular currency pair. It also indicates cross unders and crossovers. Based on these elements, you can discover whether to buy or sell a currency pair.
The Bollinger Band
This indicator is used to identify and measure volatility in the market. It is essentially a volatility channel. The Bollinger Band relies on the fundamental principle that if the price of a currency pair exceeds the Moving Average and surpasses it by a specific amount, a trend is beginning. This indicator utilizes two main parameters. They are the specific number of days involved in the Moving Average and the number of Standard Deviations as well.
The Fibonacci Retracement
This indicator works on the principle that if a currency pair makes a move which is extreme, the market will recover by retracing specific proportions. These proportions are derived from the Fibonacci sequence. The Fibonacci Retracement relies on 3 key ratios. By applying this indicator, a beginner trader can identify movements in the price before they happen. Hence it is a leading indicator.
Forex trading is quite profitable in nature. Beginner traders can use the indicators described above so as to create and apply their strategies successfully. They are reliable units for creating and maintaining short and long term trading strategies.