Indicators That Are Used To Interpret The Market
Best Indicators for Intraday Trading - To trade the market - traders must find a way to analyze the market price movement and trends. One way of analyzing the market is to use technical analysis - this is a method of analyzing currency price moves using charts and technical indicators in order to determine the trend of these currencies. The trend can be upward or downwards and a trader will open a buy or sell trade depending on the trend direction.
There are many types of technical indicators that can be used to determine the market direction or analyze the momentum of the market trend. A trader needs to know these indicators so as to know when to use one or the other indicator when trading forex.
How to Interpret The Market Using Technical Indicators - Understanding Indicators
Trend Following Indicators - Indicators Explained
These trend following indicators are use to determine the trend of the market. These chart indicators will show the general direction of the market that can be downwards or upwards. The trend is what determines what side of the market has more traders. Traders should always trade with the market trend as this trend shows the direction that has more momentum - and in forex, once a trend is formed prices are likely to keep moving in direction of the trend because the market trend will have momentum.
There are different technical indicators that are used to show this trend direction and to analyze the momentum of this trend - these indicators are known as trend following indicators. These trend following indicators are:
MAs Indicator - moving average indicator is one of the most widely used indicators in the market. This moving average indicator is a trend following indicator that shows the moving average of price. When prices are moving upwards the moving average technical indicator will also move upward and when prices are moving downwards the moving average technical indicator will also be moving downward.
Most common method of using this moving average indicator is to use 2 moving averages that form a moving average cross-over system. This moving average crossover system will generate buy or sell trades using the following technique:
Buy signal - when both moving averages are heading up
Sell signal - when both moving averages are heading down
The two moving averages will be comprised of one moving average with a shorter price period and another with a longer price period - for example the 5 day moving average and the 7 day moving average combine to form a moving average crossover system. When the market trend changes the moving average crossover system will also change direction. Before this moving average crossover system changes the direction - the two moving averages will cross over each other and this will be used as a signal that the market direction is about change.
Traders can learn more about the moving average crossover strategy from the strategies section found on this web site.
There is also the popular 200 day moving average indicator used to determine the long term market trend, when price is above this 200 day moving average - prices are bullish and when prices are below this 200 day moving average - the trend is bearish.
Trend Confirmation Indicators
Trend confirmation indicators include the MACD indicator and the RSI indicator. These two indicators are used to confirm the trend direction after a new trend has developed. These indicators provide additional information about the momentum of a trend and these indicators help the traders to know if a trend has enough momentum to continue moving in the current direction. If a signal is generated by a trend following system - the trader will decide whether to trade that signal after it has been confirmed by these trend confirmation indicators.
RSI - RSI technical indicator will confirm a buy signal once the RSI indicator moves above 50 center mark and this will show that on average prices are closing higher than where they are opening, while RSI technical indicator will confirm a sell signal once the RSI moves below the 50 center mark because this shows that prices are generally closing lower than where they opened.
MACD - MACD indicator will confirm a buy signal once MACD line moves above the center line mark and this will show prices are closing higher & it will confirm a sell signal once the MACD line moves below the center mark because this will show prices are closing lower.
Therefore, the trend following technical indicators & trend confirmation indicators are used together to generate reliable signals.
Best Indicators for Intraday Trading - Best Indicators to Use in Forex - Best Indicators for Technical Analysis.
