4 Types Of Indicators FX Traders Must Know
Many forex traders spend their time looking for that perfect moment to enter the markets or a telltale sign that screams “buy” or “sell”. And while the search can be fascinating, the result is always the same. The truth is, there is no one way to trade the forex markets. As a result, successful traders must learn that there are a variety of indicators that can help to determine the best time to buy or sell a forex cross rate .
Here are four different market indicators that most successful forex traders rely upon.
Indicator No.1: A Trend-Following Tool
It is possible to make money using a countertrend approach to trading. However, for most traders the easier approach is to recognize the direction of the major trend and attempt to profit by trading in the trend’s direction. This is where trend-following tools come into play. Many people misunderstand the purpose of trend-following tools and try to use them as separate trading systems. While this is possible, the real purpose of a trend-following tool is to suggest whether you should be looking to enter a long position or a short position. So let’s consider one of the simplest trend-following methods – the moving average crossover .
A simple moving average represents the average closing price over the number of days in question. To elaborate, let’s look at two simple examples – one longer term, one shorter term. (For related information on moving averages, see Exploring The Exponentially Weighted Moving Average . )
Figure 1 displays the 50-day/200-day moving average crossover for the euro /yen cross. The theory here is that the trend is favorable when the 50-day moving average is above the 200-day average and unfavorable when the 50-day is below the 200-day. As the chart shows, this combination does a good job of identifying the major trend of the market – at least most of the time. However, no matter what moving average combination you choose to use, there will be whipsaws .
Figure 1: The euro/yen with 50-day and 200-day moving averages
Figure 2 shows a different combination – the 10-day/30-day crossover. The advantage of this combination is that it will react more quickly to changes in price trends than the previous pair. The disadvantage is that it will also be more susceptible to whipsaws than the longer term 50-day/200-day crossover.
A balance sheet account that represents the value of all assets that can reasonably expected to be converted into cash within.
The total amount of tax that an entity is legally obligated to pay to an authority as the result of the occurrence of a taxable.
A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares.
Net Margin is the ratio of net profits to revenues for a company or business segment – typically expressed as a percentage.
A company s total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage.
The current ratio is a liquidity ratio measuring a company s ability to pay short-term and long-term obligations, also known.