What are the best indicators to trade with?
- By FXT
- January 24, 2023
- FXT Analysis
When you trade, it can be helpful to have a visual aid of where the market is positioned and what it is doing, both on a price and statistical level. Over time, with experience, your brain can help depict conditions based on previous setups and market movements so that you can ascertain what the market might do in the future.
What is Trading, In layman’s terms?
Understanding the factors that could lead to price movement, can in turn help you create a positive trade outcome, since trading is simply the act of entering the market in a hope for price movement to occur in the future, where you can then exit and make a profit.
What Can Affect Price?
Price can be affected by more orders on the buy or sell side, effectively driving price in a certain direction. Not enough buyers as people want to exit their position means the price could move down and vice versa. That’s the basic concept, but what else drives these decisions behind buying and selling?
Market information such as news events like fiscal and monetary policy, business requirements and economic climate play a big part in price movement. Traders also look for value in trading decisions. They consider if a price is good value while they wait for price to eventually move in the direction of choice.
What indicators help decide if a price is good value?
Moving averages can be used to determine an average price over a period of time, to help traders figure out where the market has been previously on an average calculation.
Bollinger Bands show a standard deviation of price, so that traders can work out if the market is currently in line with normal market conditions or if the price is now out of its normal price deviation. This can be a useful tool in determining market condition, when it ‘normal’ or ‘abnormal’.
RSI or Relative Strength Index is a measure of strength in buyers and sellers. It can help to determine when a market is overbought or oversold. This is a similar concept for Stochastic levels.
Support and Resistance are not so much indicators, but are a highly common way for traders to find key levels to trade around. Using certain levels as walls or barriers, traders can wait for price to go near certain levels and potentially reduce their stop loss size and play around areas of importance in the hope to secure a good entry rather than playing the waiting game once in a trade.
Do indicators affect price?
Indicators themselves generally do not effect price, it is the orders and positions of traders, investors and other market participants that drive price. Indicators do help to determine key information about where price is, and where it may go. They say knowledge is power, and visual representations of trading information can help the mind of the trader stay sharp and clear about what is in front of them.
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