- September 2014
- Posted By Ninoslav
- 0 Comments
Did you know? Studying and analyzing data from price movements in the market can reveal a lot of ‘unknown information’ lurking within the forex market. In other words, studying that same data will reveal information about how price movement and trends develop in the forex market.
Why use forex analysis?
The main principle of forex analysis is using historical data to find more information that can help predict future price movements. Due to the forex market’s 24/7 nature, there’s plenty of data to go around—and that amount of data pretty much means that it can be used for analysis at any time a trader wants.
With forex indicators, forex traders can easily decipher market data without having to rely on less efficient methods.
These tools are designed to handle tracking and/or predicting future price movements, ultimately giving forex traders the information they need to trade better in the forex market. Here, we’re going to take a look at some of the most common forex indicators used by forex traders.
The most common forex indicators
Commodity channel index (CCI)
This forex indicator is also known as an oscillator, which is used to find out when investment vehicles get overbought and/or oversold in the market. While this technical indicator used to be relatively obscure, it gained popularity to eventually make it one of the most commonly used forex indicators.
Besides tracking the movement of commodities, the commodity channel index also tracks market movements and trends originating from currencies. You can use this type of forex indicator with other types to effectively track potential market price movements.
Relative strength index (RSI)
The relative strength index is pretty much one of the most common – and popular – forex indicators out there. It functions similarly to the CCI, finding out the oversold and/or overbought ‘condition’ of solely currency pairs.
Using an RSI can help traders find out how much ‘price volatility’ can affect currency pairs; this is usually accomplished by having the indicator generate false trading signals. When paired with other forex indicators, it can help test how reliable these signals may be.
The main way that RSIs track currency pairs is through its range of 1 to 100. If the RIS reaches a certain threshold, it can tell a trader if a currency pair has been overbought or oversold.
Another popular and, subsequently, common forex indicator is the moving average. These indicators are known for being the average value of any currency price presented during specific periods of time.
It essentially helps traders find out the strength of momentum in the market, while also checking if there might be any support and resistance levels present there. There are also three types of moving averages, known as the simple moving average, weighted moving average and exponential moving average.