20 Dec The Best Forex Trading Indicator Every Trader Should Know
There is no doubt that success comes from a lot of things including knowledge – this truth or perhaps fact is also applicable in Forex trading. For one to be very successful, it is important that they invest time in a good forex trading indicator for learning technical analysis.
The issue is that, when first observed, names of technical indicators sound distastefully complicated, for instance, RSI, MACD, or Stochastic. Nonetheless, it is recommended that you don’t at any point judge a book by its cover. We will assist you by providing a simple and fair explanation for the technical indicator that us the most popular. We are convinced that at the end of it you will have good understanding of how to use them. The question now is – Are you interested? If yes – Let’s begin!
The best forex trading indicator for Forex traders
Depending on their respective purpose, technical indicators are divided into different groups. For the act that the purposes of the indicators are not in any way alike, a trader needs a combination of different indicators to open a trade. The article will educate you on some of the most popular technical indicators.
Moving Average – an indicator useful when identifying the trend
Moving Average (MA) is a trend indicator. It assists in following and identifying the trend.
Technical principle: MA displays an average value of a price over a given time period.
In simple terms: Moving Average goes along with the price. This line assists when you want to smooth the price volatility and purge unwanted price “noise” so that you can place more focus on the key trend and not on the modifications. It is important that you understand that this indicator does not forecast the future price, but however it outlines the market current direction.
Advantages of Moving Average:
- Identification of a trend direction;
- Displays the resistance levels and potential support;
- Locates trend reversal
Disadvantages of Moving Average:
- trails behind the current price (it will change sluggishly than the price chart as the indicator is established on the previous prices).
It is important you are aware of the fact that there are four types of Moving Averages – Smoothed, linear weighted, exponential and simple. The difference between all four types is technical (the amount of weight assigned to the most recent data). It is highly recommended that you make use of a simple Moving Average just as the majority of traders make use of this line.
How to interpret
In summary, you will observe that when a trend is bullish, the price of the currency pair is somewhat above the bearish and MA – when the price falls below. It is important that you pay close attention to how Moving averages with different phases behave with respect to each other.
When a shorter term Moving average (e.g. 50-period) rises above the longer term Moving average (e.g. 100-period), an upward bias is confirmed. And vice versa, when a shorter term Moving Average falls below the longer term Moving Average, a downward bias is confirmed.
What Moving Average does is that it indicates when to make a purchase or when to sell a currency pair (sell in a downtrend, buy in an uptrend). Moving Average will not tell the level to open your trade (that’s when other indicators are needed).