The Best Indicator & Strategies for FOREX

Nearly $4 trillion is traded every day on FOREX currency markets worldwide.
Nearly $4 trillion is traded every day on FOREX currency markets worldwide. (Image: Jupiterimages/ Images)

The foreign exchange market (FOREX) is the financial market in which foreign currencies are traded. For those interested in trading in this market, FOREX indicators are useful tools that show trends, price fluctuations, traders' participation in the market and repeating patterns within the market. There are a variety of trading strategies that you can implement when trading in the FOREX market. However, the best strategies are the ones that use indicators to complement your own trading style.

Choosing the Best Indicators

According to the Bank for International Settlements, more than $3.98 trillion is traded in the FOREX market every single day by thousands of institutional and individual traders. Because of this, there is no one indicator the industry can call the best, as every trader is different. The goal when choosing FOREX indicators is to pick a combination of a few that will allow you to analyze the market based on your trading style. If you are a long-term trader, the indicators that you use may be different than those used by a day trader who is looking to get in and out of a trade in less than 24 hours. The challenge lies in finding a perfect combination. Ideally, indicators are meant to provide different types of information regarding the marketplace, but they must validate each other instead of simply duplicating signals. It is crucial that you choose indicators that analyze different data to avoid repetition of trends.

Categories of Indicators

FOREX traders must be aware of different indicators used to gauge the market. Most indicators will fall into one of the following categories: trend indicators, volume indicators, momentum indicators, volatility indicators and/or cycle indicators. When trading, it is crucial to avoid using too many indicators from the same category. If you set up a few of these in an organized chart, you will be able to spot the similarity in patterns. It will then stand to reason that those indicators that rise and fall in sync with one another are most likely analyzing similar data.

FOREX Trading Strategies

There are different ways investors speculate on the FOREX, with the most popular ones including FOREX spot, future trading, options and exchange-traded funds. Each of these methods requires different strategies in order to trade profitably. The spot market entails direct trading with the current market price; it operates around the clock and has high liquidity and tight spreads. Futures are standardized contracts to buy or sell certain assets at specified prices in the future, with a market that is well regulated and quite transparent for investors. Options are financial instruments that give you the right to buy, sell or keep certain assets at set prices when the expiration date matures.

Best Strategies for FOREX Trading

As mentioned, there are no particular best strategies for FOREX trading. Novice investors must begin by learning the basics of FOREX trading. You must be patient and invest your money gradually to avoid huge losses, and consult a FOREX broker or agent to assist you in setting up an account in your preferred option. Finally, acquire a suitable FOREX trading platform to assist you in trading FOREX online effectively from the comfort of your home.

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