15 September 2015

Trading Forex: Indicators

Before deciding which technical indicator to use, it helps to determine whether you are operating in a range-bound or a trending market, as different strategies work best in different market environments.

​​​​Here are a few of the most commonly used strategies by technical traders:

Moving average - a trend-following tool which charts the average closing price of a given currency over time so traders can see where it might go in future. 

Moving average convergence & divergence (MACD) - analyses the relationship between two moving averages. Using a trend-following and a trend confirmation tool together act like cross-checks - if both are pointing to a particular trend, then the trader has greater confidence that his strategy will be a success.

Relative strength index (RSI) - an oscillator is a tool which can be used when there is no clear trend in any direction. The RSI helps to determine when a currency is overbought or oversold by calculating how many up and down days it has experienced over a certain period. 

Stochastic oscillator - compares a currency’s closing price to its range over a particular timeframe to show momentum in trending markets.   

Bollinger Bands - tells traders when to take profits on a position. It adds and subtracts the standard deviation of price data over a given period from the average closing price to create trading bands. Traders may take profits on a long position when the current price reaches the upper band. 

Although there are many different indicators that may ​help you, it may help if you consider finding a simple, repeatable strategy that you understand.

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The value of your investments can go down as well as up.
Losses can exceed deposits on margin products. Please ensure you understand the risks.