The secrets to forex trading success: signals and indicators
If you flipped a standard coin 100 times and wagered with a friend that it would land on heads every time, you could be right anything from zero to 100 spins – that’s the nature of randomness.
However, if you tossed the same coin one million times, you could bet that heads and tails would be much closer to the 50% mark, as you would expect.
This isn’t a teaching about the law of large numbers, but more a consideration of how variance and luck can play a part in freakish results in small samples and shorter periods of time.
It’s an interesting point of reference for trading, where newcomers to investing enjoy early successes and believe that they have ‘cracked it’ or have a unique gift to beat the markets.
In the fullness of time, this will prove to be hokum.
Success in trading comes from understanding the fundamentals, which includes an ability to read technical indicators and to make the most of any signals that come your way. Then, armed with professional trading software such as ProRealTime, you can make those insights count in the market.
There are no guarantees that each and every trade you make will be a profitable one, but by understanding the mechanics of trading – and not leaving anything to chance or the flip of a coin – you can greatly improve your chances.
Indicators of success
The first tools that would-be traders need in their arsenal are indicators.
While technical in nature, the good news is that you don’t need to be a mathematics graduate to make the most of them – they are typically built into the best software packages and even into a trading broker’s pages for a forex pair.
There are a number of technical indicators you can use, and one of the most popular is the ‘moving average.’
This basically illuminates the average price of an asset over a given period of time, adding a simple line to the candlestick chart to show whether the current price is above or below the moving average. This is a great way of understanding how major news events can impact on forex value.
The average is typically derived from the closing price over a number of days, and generally speaking, the sentiment of a forex pair is positive when the current price is above the average – and vice versa.
The ‘relative strength index’ (RSI) is another indicator worthy of your time. This can offer an insight as to when a price will experience a reversal, by accumulating the sum of ‘up’ and ‘down’ days across a specific window.
Measured on a scale of 0 to 100, if a price ticks above 70 on the RSI line, then a reversal could be incoming – conversely, an RSI below 30 is often considered a buy trigger in the midst of a bullish reversal.
The ‘moving average convergence divergence’ (MACD) is the next level of moving average calculation. It takes a look at the divergence of two averages, with the specific aim of determining whether the market is likely to change soon or continue on its path.
The ‘Bollinger Bands’ analysis utilises the moving average and applies two standard deviations – upside and downside – to return a reading. The upper and lower lines indicate support and resistance levels, and can show when a breakout is possible.
Those are some of the indicators that are available to traders, but what if you prefer to take your cues from other, less technical sources?
Forex signals could be the answer. These dictate when an opportunity for a profitable buy or sell position may become available, and can be utilised either manually or automatically in your chosen software package.
These signals promote mechanical trades, rather than using gut instinct, which can be the downfall of some forex traders, particularly newcomers.
Signal providers offer their indicators via a messaging platform or even a dedicated app, and as ever, you are implored to do your research before diving in with an unproven signal platform that has no time-served history.
Forex signals can be typically divided into three camps: action (buy or sell), stop loss (identifying an exit point from a trade), and take profit (which highlights when a trader should close their position and take their money).
If you are completely new to trading forex, or have got stuck in a rut, utilising forex signals is one way that you can benefit from the wisdom and judgement of those who have a storied record of success in the industry.