Proceeds from FX trading or trading
currency pairs serve as passive income for many households across the globe
currency pairs serve as passive income for many households across the globe
While amateur traders might get
baffled by the movement of the market and the best decision they must take
while a trade is underway, it is equally bewildering for veterans, given the
complexity of the nature of FX trading. So, you cannot conclude that a trader
that has been operating in the FX market for several years will win a fortune
and the one that has just started off will lose his investment, it could be
vice versa too! Remember, the FX market behaves “irrationally” at times and you
have to be prepared to face these upheavals.
However, there’s a solution to such disappointments
and for this you must make use of certain indicators, also referred to as Forexindicators. While there are many, the most important ones have been discussed
in this write-up. So, let us delve deeper into it.
Characteristics of best forex indicators
The Fx indicators that work best are
the ones that will attempt to identify the trend and guide you to take the
right step forward. Also, they are also “feature-rich”, thereby enhancing your
chances of performing better.
Simple Moving Average
Also, referred
to as SMA, is the (arithmetic mean) average price for a given period of time. For
instance, the average mean closing costs for the last 20 days is the 20 day
moving average. The main objective of using average is to even out the price
movements so that the trend can be studied and identified. For shorter time
period it can range between 10 and 20 days and for longer time period, it can
range between 50 days and 200 days.
Being a
“lagging” indicator, it takes into account prices from the past and sets up a
trend in accordance. If you set this indicator for a longer period of time,
smoothing out effect is pronounced and the response to the changing markets is
slower too. If you want to study a trend in the market, this is perhaps the
best FX tool.
“lagging” indicator, it takes into account prices from the past and sets up a
trend in accordance. If you set this indicator for a longer period of time,
smoothing out effect is pronounced and the response to the changing markets is
slower too. If you want to study a trend in the market, this is perhaps the
best FX tool.
The Bollinger Band
A volatility
channel is regarded to be another good forex indicator to identify a trend. It
implies that if the movement of the price is beyond a moving average coupled
with an additional amount, it is quite likely that a trend might set in. The
Bollinger Band, named after its inventor, John Bollinger, a financial analyst
by profession introduced this more than 35 years ago. It is regarded as one of
the best forex trade indicators. Basically, there are 2 aspects (parameters)
that Bollinger Band takes into account, namely,
·
The
number of standard deviations you prefer to place the band away from the moving
average
·
Number
of days you consider for moving average
Most commonly selected standard
deviations include 2 or 2.5. In terms of finance, standard deviation is a
measure of the volatility prevailing in the market. So, in a nut shell, the
Bollinger Band is capable of adjusting to the volatility existing in the
market.
The band widens as volatility
increases and when volatility decreases, the band narrows down. For a long term
observation, the moving average in case of Bollinger Band can be taken as 350
day moving average.
Aside
from the above two, forex indicators, there are many others that you can check
out and make use of trading currency pairs and observing the trends, the vital
ones being Fibonacci Retracement, and Exponential moving average to name just a
few.