Forex indicators are factors that are used to identify, and if possible, create patterns from the volatility of the currency market. The raw market data is the basic input, which is then manipulated. This then offers various ways to create trading scenarios that would be advantageous to take.
This is important to note because some traders see indicators as tools of prediction. However, this is not the case. Indicators are used to give order to the price data. This is so the trader can identify possible opportunities that can be exploited to make as much profit as possible. It also allows them to minimize any potential losses.
This means that no indicator is right or wrong. Basically, the trader must use an appropriate money management strategy. This is in addition to reading the indicator properly in order to achieve the desired results.
There are several kinds of Forex indicators, and each trader will use the indicators that he/she feels gives him/her the best evaluation of the market. This is so that he/she can identify and exploit any opportunities for maximum profit. Because of the different techniques used to create these various indicators, there will be varying techniques used by different traders based upon these indicators. These techniques are all designed to find and exploit all trading opportunities so that the trader makes maximum profit and minimizes potential losses.
These indicators provide the trader with the insight needed to recognize profitable opportunities. They also provide the insight to recognize potential pitfalls and dips in the Forex market. This allows the trader to protect the investments that he/she has through proper money management techniques. Below are few of the many indicators available in forex trading.
This is a popular forex indicator; these indicators put practical limits on the price action ranges. They attempt to help the trader gain a gauge of where the tops and bottoms could be. They are most useful when determining turning points (i.e. tops and bottoms) and trending markets (to know when to enter or exit a market).
- Larry Williams’s indicators
Another popularly used indicator to determine the Forex market is Larry Williams’s indicators. These were developed by Larry Williams, who was a commodity and stock trader.
Today, the Williams Percent Range indicator is a part of the standard technical charting toolbox of virtually every trader. This is a volatile oscillator used to signal to the trader that action should only be taken when the price of currencies has stabilized in a particular region (not before that, as some other indicators would suggest).
- Moving averages
Moving averages is another popularly used Forex indicator that shows the direction and momentum of trends. The idea behind moving averages is that price action is considered to fluctuate around the average value over a period of time. Using this information, traders can determine the market’s momentum by calculating if the current prices are above or below the market’s average value. The trader has to determine the time period that the moving averages will be calculated from. They must then be updated accordingly as time passes.
- Momentum indicator
Another popularly used indicator is the momentum indicator. The pricing movement of the market moves very similarly to the movement of a pendulum; as the prices move between highs and lows, the speed of the price action increases when new traders or money enter the market.
Likewise, the speed of the price action decreases when the amount of new traders or money decreases. This results in new highs in the market being harder to sustain.
Likewise, when an unexpected event causes the market to fall, the immediate fallout of that event will cause the momentum of the negative price action to increase. However, as time passes the fallout from that event is lessened. This results in the momentum of the negative price action decreasing. Eventually, opposing forces to the current trend will gain dominance and shift the market back in the opposite direction.
Momentum indicators are used to attempt to identify these swings in the price so that traders know when to enter and exit a market for maximum profits and minimum losses. These Forex indicators aren’t precise, but are usually enough for a knowledgeable trader to determine the price action of the currency in relation to trader enthusiasm. This enables the trader to learn the underlying trend’s strength to know whether he/she should stay in the market.
De novo, these indicators are not tools of prediction, but ways for the knowledgeable trader to make sense of the price data. This allows them to identify potential opportunities in which he/she can make the most profit.