Technical analysis in the currency exchange market is very important for short-term investors like scalpers or day traders. These indicators can help a beginner make decisions quickly without making any mistake. In the Forex market, traders can’t think of short-term trading without using technical indicators.
Common technical indicators Forex professionals utilize
1. Parabolic stop and reverse
Professionals use this technical indicator frequently because it is considered the easiest and best indicator to use to predict the market’s flow. This tool is utilized as an indicator of trend as well as the reversals in the currency’s price. In the chart, a trader will see it as a dotted line. This can be an excellent indicator to predict potential movement. If you see that the dotted line is over the existing market, then consider it as a bearish market. If the dotted line goes beneath the real market, consider it a bullish one. In this case, you can go for a long trade.
2. Simple moving average
This one is another easiest technical analyzing tool that many experienced traders use in their trading software. To identify the potential resistance and support levels, the rookies have to use two different periods, such as 50-day and 100-day. The indicator will draw two different moving average lines. Use their intersections to identify the support and resistance levels. The downward movement of the average line means that the real market is also falling, and an upward trend signifies that the market is moving upward. Once you learn the mechanism of the moving average, you can easily trade options using Saxo Forex broker. Make sure you have good knowledge of the risk management process.
3. Exponential moving average
This is somewhat similar to the simple moving average. But it is different in two ways – this one acts faster than the simple moving average and evaluates the latest data points. These days, this indicator has become more popular and is being used widely. Before entering a trade or making any decisions, the experts choose two different timeframes shorter and longer. When the shorter line crosses and moves over the long-term EMA line, they buy the currencies. For short-term traders in particular, this tool can be useful.
4. Pivot points
Pivot points are used to determine the movement of the prices that differ from time to time. Among the day investors, this indicating tool is quite popular. Simply put, the pivot point is an average value of the highs, lows, and closing prices, and one can calculate it using the following formula–
Pivot points = (Sum of closing, lows, and highs) / 3
These values can be taken from previous trading sessions. Experts use the points to determine whether the price is moving up or going down.
5. Dynamic momentum index
This is somewhat similar to the relative strength index because it also determines whether the financial instrument is oversold or overbought. The major difference is that the RSI utilizes two different periods to find out the volatility of the industry. The number of periods is fixed, which varies between 30 and 5. During a highly volatile period, this indicator utilizes fewer periods, and during a less volatile period, the tool utilizes more periods. In addition to this, some experienced traders use this tool to generate trading signals.
6. Directional movement index
This indicating tool compares the lows and highs and draws two separate lines. If the movement is positive, it will be denoted by +DI, and if the trend is negative, it will be represented by -DI. When the positive line moves over the negative one, the uptrend is stronger. When the negative one moves over the positive one, the downtrend becomes stronger. You can also look for their intersections to find the support and resistance levels.
These are six simple and useful technical tools that experienced traders utilize when trading in the CFD platform.