Forex trading can be just too overwhelming to beginners, because you will be swarmed with various trading methods and tools. In most cases, you will simply overcomplicate the situation, lending to unclear decisions.
Actually, trading with many moving indicators may seem like a good choice, but most traders tend to get confused with the information overload. Veteran traders will always tell you that simplicity is the best approach. Simple trading strategies and a few tools allow for quick yet sound decision making in the volatile foreign currency exchange market.
There are 4 easy indicators that you must become familiar with. They will help you recognize the entry and exit trading points.
4 of the Forex market indicators for successful trading
> Trend following tool
Identifying the major trend direction to make money is easier. Trend following tools like Moving Averages Crossover allows traders to locate the trend, and deal with it accordingly.
Moving average chart displays a plotted line, which measures preferred currency pair's average price over a particular time period, like 60 days or 300 days etc. If the 60 day moving average is more than the 300 day average, then the trend is favorable, and vice versa.
The most important factor here is to select the right combination of days for an average crossover level. Generally, the Forex traders who chose the right combinations to suit their trading styles (long or short trade) will benefit.
> Trend confirmation tool
To double check, if the buy and sell signal generated by trend following tool is accurate or not, you must employ trend confirmation tool. For example, if both tools are bullish for specific currency pair, then traders can confidently consider taking long trade decision. If both are bearish, then traders can look for a chance to sell short.
MACD is the well-known trend confirmation tool. First the difference between two exponential smooth moving rates is measured. This difference is compared to its own smooth moving average. If the current smooth average is on top of its calculated own moving average, uptrend is confirmed, or else it is the other way round.
> Overbought / oversold tool
After establishing the trend, traders must decide if they are comfortable to jump into an uptrend or downtrend. In other words, in a bullish trend you have to select whether to buy in strength or weakness. You can enter quickly or wait for a pullback. An overbought / oversold tool will help you to decide on that.
Relative strength index (RSI) is a useful oscillator that will help you decide when a currency pair is overbought / oversold.
RSI values are plotted between 0 and 100. Value 100 means overbought, and downslide is likely. Value 0 means it is oversold, and up-trend is possible.
> Profit taking tool
When to capture the profit can also be determined by using three day RSI indicator. A trader holding long positions may take profits if RSI raises to 80 or more. A trader holding short positions may take profit if RSI declines to 20 or less.
It is important to learn different Forex indicators to determine possible trading strategies. Like any investment, strong research definitely minimizes the possible risks.