Successful forex traders know how to use market indicators
that reveal the best time to buy, or sell a forex cross rate.
Here are four of the most popular.
The first one is a trend-following tool,
which suggests whether to enter a long, or short position.
Essentially, trend-following tools help traders recognize major trends,
and then profit by trading in those trends' directions.
One method is the moving average crossover.
If the price of a stock climbs above its 20-day moving average,
it could be a signal to buy.
The second is a trend confirmation tool.
If it concurs with the trend-following tool,
a bullish sign tells a trader to take a long position
in the currency pair in question.
A bearish sign means find an opportunity to sell short.
The moving average convergence divergence,
or MAC-D is a popular trend-confirmation tool.
The third indicator is an overbought, oversold tool.
Traders must decide whether to jump in as soon as a clear trend is established,
or to wait until after a pullback occurs, so they can minimize risk.
The three-day relative strength index can help traders make the decision.
The RSI calculates the total sum of up days and down days over a time period,
providing a value that ranges from 0 to 100.
An asset is deemed overbought once its RSI level nears 70,
and undervalued if it nears 30.
And the fourth indicator is a profit-taking tool.
An RSI that rises to 80 or more is an indication that it's time to take profits.
Other good indicators are Bollinger bands and a trailing stop.