Beginners think Forex is one of the most accessible money-making platforms. They believe that in this currency exchange market, a trader has to buy a currency pair and wait for an uptrend so that they can buy that currency pair and earn profits. However, the market is not so easy the way they think. In this platform, you have to work harder to be successful because nobody can guess the upcoming move accurately, and the price can move in any direction.
An upward trend indeed can bring you profits, but what about the downward trend? Many newbies leave this currency exchange market after facing a massive loss. They jump to the trades without any prior analysis, and they even don’t use the indicators to identify the perfect entry or exit points.
Professionals have developed several tools, which have made the entire market very easy to understand. Trend trading, moving average, momentum, divergence, triangular moving average, parabolic SAR, etc. are the most common tools in the Forex industry. Here we will only discuss the two most popular indicators.
Two popular indicators
1. Moving averages
It is a technical indicator to analyze the graph. This analysis tool will create a smooth and single line, which will tell you the average price of the existing condition. Investors may choose the duration to make the line, and the duration varies with the traders. Long-term traders choose a longer timeframe to create a simple average line. On the other hand, short-term investors choose a shorter timeframe like 20 minutes, 1 hour, or one day to create the line. To know more about the moving average formula, you can read more at Saxo. By reading the professional articles from the experts, you can easily boost your skills.
You can utilize this tool in multiple ways. Such as, if the line seems to be flat, then the price isn’t following any trend. If the line seems to go upward or downward, then you have to realize that the real market is also going upward or downward, respectively.
A trader can use this analysis tool to identify the entry or exit point of a trade. He can do it by using the crossovers. In this case, you may have to plot two moving average lines – one is by using 100-day, and another is by using 25-day (for example). It means an investor should choose two different timeframes and plot the lines for each of them. Anybody can determine when to enter the trade or exit from the trade.
The buy or entry point occurs when the short duration crosses and stays above the long duration. In this case, the 25-day “moving average” line will cross and stay above the 100-day moving average line. The exit or sell point occurs when the short duration moving average line crosses and remains beneath the other average line. Therefore, when the 25-day moving average line crosses and goes beneath the 100-day moving average line, that is the sell or exit point.
2. Moving average convergence divergence analysis tool (MACD)
It is a type of oscillating technical indicator, which varies from time to time. Some experts opine that this indicator is the combination of momentum and trend-following indicator. Momentum itself is a powerful theory to predict the upcoming condition, and because of its combination, the MACD is a powerful technical tool for the traders.
This indicator will show you another display in which you can see the histogram. This new bar graph will show you the entry point, exit point, the peak value, and the possible trending type. The bar will either be shown above or below the reference level, which is considered zero. If the bar starts going up the reference level, the condition is regarded as the upward market. On the other hand, if the bar starts going down the reference level, the market is considered to be shifting downward.
These are the two most popular technical indicators to analyze the currency exchange platform. Traders can use these tools to predict the movement of the price.