Popular types of indicators every forex trader must know, a lot of Forex traders take their time to search for the best moment to enter the Forex market or simply wait for a signal that asks to “buy” or “sell”. While learn Forex becomes an important thing to understand all of this, there are types of indicators that become one of the crucial topics to talk about. This article will discuss about it briefly.
4 Popular Types of Forex Market Indicators
Researching the perfect time to enter the Forex market can actually be fascinating. When there is basically no certain rule to trade in the Forex market, the art of finding a perfect moment to trade becomes interesting. As a consequence, a trader must continue to learn that there are a range of indicators which can help them to determine the right time to trade.
No.1: A Trend-Following Tool
Among the four top types of Forex market indicator, there is a trend-following tool. This tool comes as a solution for most traders who find it easier to trade following the trend’s direction. A lot of traders attempt to utilize trend-following tools as separate system. But, the main goal of this tool is actually to recommend whether you should enter a long or short position.
One of the simplest methods for this indicator is the moving average crossover. This method displays the average closing price more than a particular number of days. When a lot of investors tend to claim that there is certain combination which is the best, the fact is that there is no “best” combination of moving average. It requires to be matched with time frames.
No.2: A Trend-Confirmation Tool
There is trend-following tool which can tell us major trend of certain currency pair, but this indicator is considered easy to being whipsawed. As a result, it must be nice to have another tool that can make sure whether it is correct or wrong. At this point, the trend-confirmation tool comes into play. One of the most useful and popular tool here is the MACD.
No.3: An Overbought or Oversold Tool
After considering going after the major trend direction, traders have to decide whether they are more convenient jumping in immediately as a clear trend is generated or after a pullback happens. At this point, when the trend is concluded to be bullish, the option becomes whether to purchase into weakness or strength. However, you can also consider waiting for a pullback in bigger major trend.
When it comes to this tool, there are actually lots indicators which can fit in. Nevertheless, one of the useful indicators is the 3-day Relative Strength Index. This indicator measures the cumulative amount of up and also down days over a window period and measures a value which is able to vary from zero to 100. There will be certain levels shown in this indicator.
No.4: A Profit-Taking Tool
The last, there is a profit-taking tool which a trader requires to help them decide when to take a profit on a successful trade. There are actually a lot of options available here. Even the 3-day RSI is able to fit this category too. If you hold a long position, consider taking profit when the 3-day RSI rises to a level of 80 or further.
Those are several popular indicators that you better know in Forex trading. There are actually some other indicators which may not be mentioned here. That’s why you better learn Forex more in order to find out more about indicators that suit your trading style. While you are learning, don’t hesitate to test your skills in a demo account which is widely offered by Forex broker.