4 Types Of Indicators FX Traders Must Know

Forex indicators come in various forms. You can find those that focus on the volume in the market while others focus on trends. There are even those that are specifically built to address long-term needs. The different indicators are often used concurrently and consecutively. The choice of an indicator is not necessarily an indication of the skill a trader has but rather the direction they want to take. It is always recommended to have the ability to work with different indicators in order to have an edge in the market. The following are the 4 types of indicators forex traders need to know.

Profit-taking indicators

This kind of indicator (called indicateur forex infaillible in France) is essential for traders who just want to know when to stop a trade. Among the common chart indicators that are classified in this category is the Bollinger Bands. The indicator works with market highs and lows to show when it is best to quit the market and save investments. The indicators in this category work by tracking the price action in the market and afterward charting points that can be used for entry and exit.

Trend-following indicators

The second category of indicators is the trend-following type. The indicators in this category include the Moving Average. In general, trend indicators chart the counter-trend and thus allow traders to enhance profitability. The trend charted on the indicator is usually as a result of real-time data that has been enhanced by historical data.

The indicators are able to serve the needs of both long-term and short-term traders. Just like most other types of indicators, the closing price of a commodity is essential for this indicator to work. The trend-following indicators are some of the easiest to use since the output is easy to follow and read.

Indicators that confirm trends

Trend confirming indicators work similarly to trend following indicators. Both these indicators show the general trend in the market but they do not give specific positions in the market where a trader can make their investment. Trend confirmation indicators can accurately show the direction a currency pair is taking and thus allow the trader to deduce whether the market is bullish or bearish.

 

Knowing the current situation in the market makes it much easier to know how to invest. The MACD indicator is among the most effective trend confirmation in the market which has an accurate depiction of up-trends and down-trends.

Indicators that show oversold or overbought conditions

Lastly, knowledge of the buying status in the market is crucial for increasing profitability. This is why the indicators that show overbuying or overselling in the market are indispensable. In resemblance to the trend following indicators, the indicators in this category are great at indicating the prevailing situation in the market. The greatest thing about this category of indicators is that they show pullbacks in the market like no other tools can. For this reason, many traders use these indicators in order to anticipate trends and then make their investments when the time is right.

The different categories of indicators are essential to forex trading. Learning about these different categories of indicators is the best thing a smart trader can do to increase profitability.

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