Indicators That Are Used To Interpret The Market
Best Indicators for Intraday Trading - To trade the market - traders must find a way to analyze and interpret the price movement & trends. One way of analyzing the market is to use technical analysis - this is a method of analyzing currency price moves using charts & technical indicators so as to determine the trend of these currencies. The trend can be upward or downwards and a fx trader will open a buy or sell trade position depending on the trend direction.
There are many types of indicators which can be used to determine the market direction or analyze the energy 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/Analyze The Market Using 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 price 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 energy.
There are different indicators that are used to show this trend direction & to analyze and interpret the momentum of this trend - these technical 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 price trend following indicator that shows the moving average(MA) of price. When prices are moving upwards the moving average indicator will also move upward & when prices are moving downwards the moving average(MA) indicator will also be heading downward.
Most common method of using this moving average indicator is to use 2 moving averages that form a moving average crossover strategy. This MA cross-over system will generate buy or sell trade positions using the following method and technique:
Buy trade signal - when both MAs are heading up
Sell trading 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 - e.g. 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 cross-over system will also change direction. Before this MA crossover system changes the direction - the two moving averages(MAs) will cross over each other & this will be used as a signal that the market price direction is about change.
Beginner 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 trading 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 MA(Moving Average) - the trend is bearish.
Trend Confirmation Indicators
Trend confirmation indicators include the MACD and the RSI indicator. These 2 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 trading indicators help the traders to know if a market trend has enough energy to continue heading in the current direction. If a signal is generated/derived by a market trend following strategy - the trader will decide whether if to trade that signal after it has been confirmed by the trend confirmation trading indicators.
RSI - RSI will confirm a buy trade signal once the RSI moves above 50 center line mark and this will show that on average prices are closing higher than where they are opening, while RSI will confirm a sell trade signal once RSI crosses below 50 center line mark because this shows that the prices are in general closing lower than where they opened.
MACD - MACD will confirm a buy trade signal once MACD line goes above center-line mark and this will show that prices are closing higher & it will confirm a sell trading signal once the MACD line goes below center line mark because this will show that prices are closing lower.
Hence, the trend following 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.
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