Before you step into the world of currency trading market, it is better you equip yourself enough knowledge on this. But still, even if you are just a newbie, you can have your way into this world. You’ll definitely come across many s. These are all designed as indicators to help you interpret what’s been happening on the chart and, more importantly, what’s most likely to happen in the future.

These are the following indicators to be used:

Simple Moving Average – (SMA)

It is the most basic indicators of the MA used for trading. SMA formula shows the average closing price of a stock over the last “x” periods. A straightforward average of prices is computed over a selected period. The calculation is made by looking back over a period and averaging the prices to arrive at an average value for that point in time. Repeated process of this along the price line produces the moving average line.
Perfect example is, if you plotted a 5 period simple moving average on a 1 hour chart, you would add up the closing prices for the last 5 hours, and then divide that number by 5. Voila! You have your simple moving average.

You can tell at a glance from this whether the price has been rising or falling over that period. This in turn shows you what the current “trend” is. If you trade following the “trend”, as many successful traders do, then the SMA is your guide.

Bollinger Bands

The investors also use these trading bands. The purpose of this is to isolate a range of prices for a given security. It is purely based on the concept that a stock generally trades within a predictable range on either side of the moving average. This is actually considered as one of the most useful bands in technical analysis. It shows the moving average of a security’s price that also varies in distance. In the events of increased fluctuation the bands widen to take this into account, and when the fluctuation decreases, the bands are tapered for a narrower focus to the price range.
You have to be very keen with the indicators where the Bollinger Band lines are close together for a period of time. This shows a lack of buying and selling, where traders are as yet undecided as to whether the price is too high or too low. Oftentimes, once the price moves through one of the lines there is a strong movement in price in that direction, market activity rises and the lines accordingly move further apart. They are more of a short term indicator.

Stochastics

This approach uses helps us determine where a trend might be ending. It measures the overbought and oversold conditions in the market. Stochastic uses the scale of 0 to 100. When the stochastic lines are above 70, then it means the market is overbought. When the stochastic lines are below 30, then it means that the market is oversold. As a rule of thumb, we sell when the market is overbought and always we buy when the market is oversold.

Relative Strength Index (RSI)

This is another kind of indicator that measures the magnitude of gains over a given time (period) against the magnitude of (loss) over that period. It shows the current price strengths in relation to previous prices. Signals are, you buy when the RSI crosses above the oversold line (30) and sell it when the RSI crosses below the overbought line (70).

Parabolic Stop And Reversal (SAR)

This is otherwise known as “stop and reversal system”. It continuously computes for the stop and reverse price points. SAR study gives the market time to move in your favor. This study always has a market position because if the market does not move in your favor, you just need to stop and reverse your position. This allows the market to work in your favor. But as time advances, the SAR is either hit, or it follows the market direction in your favor. Remember, the SAR price never reverses. It always moves higher or lower with the market and always in the direction of your market position. It is an automatic tracking stop.

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