3 Effective Trading Indicators You Should Know
Have you ever tried to cook something without any recipe while you have never cooked it before? Or can you go to a place that you do not know without any road map? Sounds impossible, right? Trading in the Forex market without indicators is very similar to these situations. The price charts tell us so many things about the potency and future of a product. However, if you do not know which indicators show what, you will probably become a master-master of failure. To achieve your goals and targets, you have to realize the power of indicators and their function. Here, you can find 3 of the most commonly used indicators in the FX world.
Moving Averages has a lot of popularity thanks to its simplicity. It is especially used for understanding the structure of trends and observing opportunities on the path. The idea behind it is to calculate the average price of a product over a specific period of time.
The time periods maybe 15,30,50,100 or 200 days depending on the analysis that you want to make. Because it depends on the past prices and does not say anything certain about the future prices, it is considered a trend-following or lagging indicator.
While the prices are going in the same direction with Moving Averages, it becomes logical to follow the trend. However, if it moves in the opposite way, it demonstrates that the expected pattern may change in a short period of time and exit will be a better option.
Relative Strength Index (RSI)
This indicator is an oscillator giving an idea about the future prices and the end time of a trend. As a feature of oscillators, the RSI ranges between 0 and 100. The period of time for RSI can change according to the preferences but the most used one is 14 Days RSI.
30 and 70 are accepted as the most crucial thresholds in this system. If the RSI value exceeds 70, it means that the currency pair or product is overbought and a trend reversal may happen. On the contrary, if it sees or goes under 30, it states an oversold or undervalued situation. Thus, you can adapt yourself to the changes in trends by observing the RSI.
Moving Average Convergence Divergence (MACD)
MACD is one of the trend-following momentum indicators and it represents the difference between two moving averages. It is equal to the 26-period exponential moving average (EMA) minus the 12-period EMA. The line of this subtraction is called the MCDA line.
MCDA line has to be compared to a signal line, which is the 9-period EMA. If the MCDA line crosses above the signal line, it gives a signal to the traders to buy this asset. On the other hand, selling a security is more sensible if the MCDA line crosses below the signal line.Share this article