Safe Link Converter
Being a step ahead of the game is an advantage any Forex trader would enjoy. It is not just about jumping into a trend and riding it out. As has been said many times, nothing in the Forex market goes straight up and nothing goes straight down. Getting a jump on leading Forex indicators will give you an idea as to when a market is likely to turn. It's always best to get in on the start of a reversal than to try to catch up. If at all possible, you want to avoid leaving money on the table.
Basic typesWhen dealing with leading Forex indicators, you will hear talk of basically three different types. There is the Relative Strength Index; Stochastic; and Parabolic SAR. If you do a fair amount of research you'll be able to find others as well, but these are the most common and the ones you'll come across most often.
The stochastic and Relative Strength Index are built to determine if and when a market has been overbought or oversold. When these things happen in any market you can expect a reversal. Much of this has to do with simple profit taking. Particularly with the big banks and financial institutions, once they start to sell off (or buy back) in order to secure profits, you can expect many in the retail trade to do the same. This is naturally going to determine a change in direction of the market.
This may not cause an all out reversal. It may just cause a minor retracement, but nontheless, more often than not it could trigger off a move you don't want to get caught in if you're on the wrong side. Being aware of the leading Forex indicators may not get you into a trade, but it could protect you by getting you out of a trade, which can be equally important.
As for the parabolic SAR, it will not be showing you whether the market is overbought or oversold. It is designed to signal to you whether the market has changed its trend by placing a dot below or above the candles. This is an important warning signal in itself. In essence, the Forex trader doesn't care why a market is doing what it's doing; he just wants to know ahead of time what it's going to do.
The down sideIf these methods were fool-proof, everyone would have them and everyone would be following them. What continues to make the Forex market remain interesting is the unknown. There are times when the leading Forex indicators can be misleading. If there is some fundamental news coming out, or a news flash, or any number of things that can happen during the day, the indicators may put out a false signal, and when followed blindly, can cost the Forex trader some money.
Be careful. Like everything else from your technical charts to your fundamental news, the leading Forex indicators should be used as just one tool. Your ever present stop loss order is there to safeguard even the most tested method of trading.
|Need a new Forex broker? For a fun, social trading experience, check out eToro by reading our eToro review, or for a Forex broker with helpful conversion tools, try Oanda and its unique Oanda currency converter. Let us help you find a broker that offers the services you need!|