ARE YOU USING THE RIGHT TOOLS?

Like any other warrior, one must be equipped before going into battle right? Today traders use technical indicators as their tools to analyze the movement in price based on historical and current data. Indicators can be either simple or complex, like how some would be appropriate for newbies while others suited more for the experienced.

When used correctly it can determine the perfect moment to buy or sell and as a trader, it is important to understand the basics before proceeding. Almost everyone will advise traders to pile up on study material or even go through months of training in order to master indicators. Here at Ausforex, we would like to share with you the 5 indicators you can start using to help upgrade your trading game.

1) Simple moving average It is an indicator that incorporates the moving average of a specified number of days. Example a 12-day simple moving average equals the daily average movement calculated over a period of 12 days. This allows you to identify the moving average in the market trend, as it lets you recognize a signal in the past and provides a signal after a trend begins. This is because a long-term average movement can signal an uptrend while a long-term average movement below a short-term average can signal a downtrend.

2) Relative strength index (RSI) The RSI is an oscillator that measures the change when the price moves. It oscillates from 0 to 100. Forex traders consider 70 as underbought and 30 as oversold. This tool helps you identify chart patterns that may or may not show underlying charts like double tops and bottoms. Also helpful in helping you identify support and resistance.

3) Stochastic indicators An instrument that measures the momentum of price in the currency that you have paired. Its momentum of a currency pair changes before the actual movement happens to a currency pair. Used by traders in many ways, with a sole purpose to identify overbought and an underbought conditions in a currency pair. A tool which is easy to master but takes a lot of practice and patience to fully understand this concept.



4) Parabolic SAR Known as Parabolic Stop and Reverse (SAR) is special compared to those mentioned prior as it is used to identify the END of a trend rather than when it starts. We use it to determine the optimal exit points for open positions, as each point represents a potential reversal. A point which appears below the indicator as an uptrend and above as a downtrend. This only works in a trending market, as it gives a misleading signal in ranging sideways markets. Given time and effort, this can be learned by any trader who wants it.

5) Average True Range This tool used to measure the volatility of price changes in a currency pair, used by traders to gain insight into recent historical volatility in order to plan for culture changes. It is considered an oscillator because the curve fluctuates between values calculated based on price volatility within a specific period of time. Using the average true range does not determine a trend, but it enables traders to measure the short-term sharp swings in the market.

We would like to conclude that after discussing the tools of the trader and hope you have a better understanding of it all. As a trader doesn't need to master it all in order to become an expert. In reality, you will only be using a few to give you that edge in the market. We understand that not all indicators are perfect nevertheless, as you get used to the indicators this will pave the way on how you build your trading strategies.