If you know anything at all about forex, it’s that no one is truly psychic. Forex, or foreign exchange markets, run on the value of currencies from all over the world. Traders invest in pairs of currencies to sell and then make bank with – it sounds refreshingly simple, but the deeper you get into the markets, the more complex your strategies are likely to get.
Thankfully, there is a whole world of resources out there to help new traders get used to what they can expect from buying and selling on forex. For example, they may wish to look carefully into profitable forex pairs before choosing a currency that appeals to them. What’s more, trend indicators can help us to ascertain which pairs – and moves – are likely to make us the most money. Let’s take a look at a few crucial examples well worth considering below.
When it comes to keeping forex simple, it may be worthwhile sticking to moving averages. These indicators are fantastic at helping us understand how values are likely to change over time. Moving average indicators will determine a ‘happy medium’ regardless of volatility up or down over years of market activity.
While this indicator may not offer a sure sign of where forex values may be heading, the longer the data reach, the more assured you can be that any values higher or lower will carry risk. Therefore, if you are the type of trader to keep a close eye on big waves up and down, a moving average could help you decide when is best to sell.
Price action indicators are widely used to help traders ascertain when commodities are likely to spike in future. Rather than working on an average value as with the MA indicator above, price action will instead advise when big spikes occurred, and will analyze why.
This will give traders some form of predictability factor that could help them to sell as close to a future peak as possible, or to analyze when a dip is coming. In either case, price action indicators are great for those traders looking for make or break moments. Critically, a PA indicator could be worth following if you are interested in scalping or making breakneck decisions on forex that are otherwise difficult to account for.
Relative strength (RSI)
The RSI, or relative strength index, is massively popular with traders for a variety of reasons. This is largely thanks to the fact that it can help to predict the movements of various types of commodity. In forex, you can use RSI to indicate when a pair has been oversold in the past. In fact, it can also be used to help ascertain when pairs or assets have been overbought, too.
Critically, the RSI approach uses historical data to determine when mistakes have been made on grand scales. This is the ‘learning from history’ approach – and while it may not always work, it does give some strength in terms of forex, where currencies are affected on much different scales compared to average stocks and commodities.
RSI markers can, at least, flag when spikes are likely to be reaching historic peaks, with the same applying to dips, too. This can help to provide a little more confidence to traders who want to ride highs and lows a little longer than they normally might.
Are trade indicators always a good idea?
Given the random nature of market trading, it is safe to say that placing all of your interest and confidence behind a single indicator may not always be wise. However, given that currency values can change slower and less violently than traditional stocks, it may be wise to pay attention to some indicators to get a foothold on how things may have turned out in years gone by.
Trend indicators, however, can also be abused. Some traders find out the hard way that indicator models are never the key to profitability and success. Therefore, if you do wish to start using a trend indicator to help make stronger decisions in forex, it’s never a good idea to solely rely on the model alone.
Be sure to do plenty of research into the currencies you intend to follow. Coupled with a strong indicator model, you may find that you are able to convert such a strategy into success with minimal effort. However, no matter your investment plan, always make sure you have a safety net backing you up.