Most Reliable FOREX Indicator
Forex trading is a fun hobby for some and a living for others. Trading profitably depends upon having reliable ways to read the market and placing more winning trades than losing ones. Using technical indicators can help increase the odds of making trades that close with a profit.
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Forex and Indicators
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Forex is an abbreviated way of saying foreign exchange, and is also known as FX. Foreign exchange is the exchanging of currencies, where a person will buy one currency and simultaneously sell another. In other words, they will exchange the sold currency for the one they are buying. These transactions take place in a market similar to the stock market, known as an over-the-counter-market.
In the world of currency trading, there is no centralized exchange like there is for stocks. The Forex world is made up of a de-centralized network, with all transactions taking place over the phone or an electronic network of computers. Due to the ongoing market activity in various countries around the world, the Forex market is open 24 hours a day each week, starting Sunday evening until Friday late afternoon.
Forex Traders
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There are two main groups who take part in daily currency trading. The first group, about five percent of the total, is comprised of businesses that engage in foreign trade, buying and selling products in other countries, and converting their profits from foreign currency into domestic sales figures.
The other group, which makes up the other 95 percent, is made up of speculators. These might be currency traders who work for large companies or investment banks, or they may be individuals who trade for their own account.
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Leading Indicators
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Forex is traded by observing the market activity on charts with updates that are shown continuously on computer screens. There are numerous strategies employed by traders to try to predict the market's direction, and then make profitable trading decisions. Using a type of Forex trading known as technical trading, they rely on technical indicators to show them what might happen next in the market. This information will then help decide when to open a new trade transaction.
There are over 100 indicators, and it is difficult to say that any one is the best, since a large part of the success of any indicator is based on the user's interpretation of their results. All indicators are useful, depending on how a trader uses their information.
Leading indicators try to predict what is going to happen next in the market. Traders who already have a trade open will use this information to plan a point in the future to exit their trade and make a profit.
Some of the most popular leading indicators are Pivot Point and Fibonacci.
Lagging Indicators
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Lagging indicators are used to interpret the past history of the currency market's movements. This could be on a one or five-minute basis, or it could be on a one-day or one-week basis. Many traders will look at lagging indicators for four or five different time periods, and then make assumptions about the current trend in the market, based on this historical information.
Some of the most popular lagging indicators are Bollinger Band, MACD, Moving Average.
Most Reliable Indicator
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In order to make trades that have a high probability of closing profitably, a person will need to choose a combination of indicators that help them choose the best points to enter and exit their trades. There is not one indicator that can tell the whole story, but with the proper understanding and use of both lagging and leading indicators, a trader can reduce his odds of losing money and start trading profitably.
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References
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- Photo Credit foreign exchange image by Janos L. Sison from Fotolia.com
