Many people have tried forex trading to earn money and to become rich. But what most people didn’t know is that forex trading is not easy, and won’t make you rich in an instant.
Forex trading requires a lot of determination, reading Online Trading Review and patience as traders spend their time looking for that perfect moment to enter or exit the market. It’s time consuming, but at the same time, very fulfilling when your trades are successful.
So how do traders earn in the forex market? The answer is forex trading indicators, about which you can learn in detail by checking out Online Trading Tips.
Indicators are like your weapons in the battlefield. Put them together with several strategies, you’ll be dominating the forex market like no other.
Simple Moving Average
A simple moving average (SMA) is the average price for a specific time period. The goal in SMA is to smooth out price movements in order to determine the trend.
But remember that SMA is a lagging indicator, which means it incorporates prices from the past and shows a signal after the trend begins. So the longer the time period of the SMA, the greater the smoothing and the slower the reaction to changes in the market.
Exponential Moving Average
Exponential moving average (EMA) is similar to SMA. The difference is that EMA focuses more on recent prices. This means that the EMA will respond more quickly to price changes.
With this indicator, you’ll always have a position of either buying the currency pair in question or short it.
Moving Average Convergence/Divergence (MACD)
This indicator is designed to gauge momentum. As it identifies a trend, it also measures the strength of the trend. It is believed that MACD is the best indicator for forex trading.
The key behind this indicator is calculating the divergence between a faster EMA and a slower EMA. Just like moving averages, experimentation will help you find the ideal settings for you.
A Bollinger band is a volatility channel that was invented by financial analyst John Bollinger more than 30 years ago. It is one of the best indicators for forex trading out of the different volatility channels methods.
This indicator has two parameters. The first one is the number of days for the moving average, and the second one is the number of standard deviations that you want the band placed away from the moving average. The common values for standard deviations are 2 or 2.5. They act as a way of determining volatility.
Furthermore, a Bollinger band adjusts to market volatility. It widens if volatility increases, and it narrows if volatility decreases.
If the previous day’s close is above the top of the band, then you should go for a buy position. If the previous day’s close is lower than the bottom of the band, then you should go for a sell position.
These are the most commonly used trading indicators in the forex market today. If you want to get into full details about them, or learn other trading indicators, you can ask your broker for more details.
Learning these indicators is a great way to become successful in forex trading. You can try all the indicators to see what suits you best in accordance with your preferences and trading styles. You’ll be surely one step ahead from all the other traders out there.