Forex market indicators
Many traders use various indicators to determine the potential directions of price dynamics. There are many strategies with the use of these indicators. In this article we will pay special attention to the following of them: trade in Overbought and Oversold price state, trade in curved moving averages, trade in oscillators, etc.
Indicators trading strategies
The most famous and well studied strategy of indicator trading is MA curves. In this article we will try to disassemble two of them – SMA and EMA. SMA curve is the simplest, well-known and used indicator of Forex market. This curve shows the average price change for a certain period. The trader can only choose a period (a number of calculation values) and the calculation parameter (the indicator adds certain values (depending on the parameter – high, low, open, close) and divide by the period chosen by the trader). Often as a calculation parameter traders chose the maximums of nth (depending on the period) candles or bars.
There are the following types of strategies based on SMA: traders use one SMA indicator and trade the intersections of this indicator with price; the trader selects two or more indicators and trades either the intersection of the SMA curves, or the intersection of the price of these curves. The drawback of any indicator and MA in particular, is the delay, but the trend MA indicators type have one more big drawback, they show a bad result during consolidation and the absence of obvious trend. If the trader uses the strategy of crossing the price of the SMA curve, then he should know the following: the reliability of the indicator signal depends on the period of the chart and the indicator (the higher the period value, the more reliable the signals, but their frequency will be relatively low).
If you add another one to the existing SMA indicator, but with smaller period, then the following kind of strategy arises based on this indicator: the fast SMA crosses the slow bottom-up – we buy and sell if the fast SMA crosses the slow from top to bottom. There is also an EMA in addition to SMA. These indicators differ in that the latter gives more fresh all the price information, which increases its sensitivity and the speed of reaction to changes in the price situation.
Trading on strategies with oscillators
Besides trend indicators, traders can also use oscillators in their trade. There are two types of trading strategy based on oscillators – Overbought strategy and Oversold strategy. To illustrate these strategies we use the Stochastic. Stochastic type indicators, as traders know, consist of two agreed levels and since this indicator is displayed in percentage, these levels are 20% mark (the bottom horizontal indicator band) and 80% (the top line). When indicator curve crosses 80% at the bottom, then this market moment is called Overbought.
Oversold appears over the curve crosses above 20% mark. The repeated intersection of the curve is the signal for active purchases or sales, this time in the opposite direction of the indicator’s mark.