Technical Indicators are an important set of tools that the technical analyst can use to gauge market movements. There are numerous different schools of thought and approaches to the use of indicators within technical analysis.
How to Find the Best Technical Indicators for Profit
Having made the decision to start trading Forex you need to gain some basic knowledge in order to find some signals. Increasingly traders learn and make use of technical indicators for this purpose.
Technical indicators are mathematical formulas that provide you with accurate information on the condition of the markets. These can be read to indentify the trading signals with which you can profit from the Forex markets.
Why Traders Use the Indicators
Traders make use of them for a number of reasons, with the most obvious being that they offer guidance in the markets. They provide an easily recognisable way of determining price action movement from different analytical perspectives.
There are a wide range of technical indicators that can be used. What is common to them all is that they make use of mathematical formula to analyse past market prices. The calculations that they provide can then be interpreted by the trader and used to predict likely future market direction.
Indicators fall into four main categories:
Trend Indicators – The most commonly used of all indicators. Trend indicators are used to identify the dominant directional trends in the market and therefore the most likely future direction that they will take.
Volatility indicators – These calculate the extremities of market movement in comparison to their average historical movement.
Momentum indicators – Momentum measures the speed and likely continuation of a market move. In strong trends it can indicate the likely continuation of a move or whether it is likely to falter.
Volume related indicators – Here the market volume is measured. This can help to determine the strength of market moves by indicating if recent moves are backed by significant buying or selling in the market.
How to Use Technical Indicators When Trading
Although they cannot provide a total analysis of a given market, they can nevertheless provide indications of potential opportunities. If you stick with following the greater trend of the market you can make use of indicators to provide you with opportunities to profit from both pullbacks and the resumption of this trend. Of course be aware that the currency markets are an unpredictable place. Use indicators as a guide to what you think will happen but never give up your capacity to make educated and smart decisions.