How to Find Profitable Forex Signals
Accurate forex signals help a trader take advantage of favorable currency movements and trade profitably. Here, we tell you the type of signals, and how to look out for them.
Forex is the most liquid market in the world, and operates round the clock. It is a market where currency pairs are bought and sold in order to benefit from favorable exchange rate movements. Forex signals refer to the various indicators used by forex traders in order to identify the appropriate time for buying and selling currencies. A forex trader uses both fundamental and technical analysis in order to decide whether or not to trade. Fundamental analysis is based on economic factors that have a direct impact on the exchange rate. Technical analysis involves studying trends and patterns in order to decide on the prudence of a trade. Forex signals help the trader reach a decision, on whether or not to execute a trade, by giving the trader an indication or signal about expected currency pair movements.
Types of Forex Signals
Technical analysis relies on accurate signals that are provided by chart indicators. In order to understand indicators, we need to understand the different types of charts. These charts can be classified as line charts, bar charts, and candlestick charts. Indicators can be classified into two categories: Leading and Lagging. Leading and lagging indicators are economic factors that can be quantified.
Leading Indicators
Leading indicators provide a signal before a change occurs in the movement of currency pairs. In other words, they prepare a trader to spot a trend before a reversal is visible. This would help a smart trader benefit by buying low and selling high. Oscillators are leading indicators. Simply stated, an oscillator is a pendulum which swings between two extremes; buy and sell. The only time the oscillator does not give an accurate signal, is when it is not positioned at one of the extremes. Parabolic Stop and Reversal, Relative Strength Index, and Stochastics are examples of oscillators. Parabolic Stop and Reversal (SAR) helps a trader identify bullish and bearish trends. Relative Strength Index (RSI) and Stochastics, on the other hand, indicate oversold and overbought market conditions. When the market is oversold, one should buy. When the market is overbought, one should sell. Parabolic SAR uses dots on the candlestick chart in order to indicate shifting trends. When the trend shifts from an uptrend to a downtrend, the dots shift from below the chart to above the chart. Stochastics use red dotted lines to indicate overbought conditions, and blue dotted lines to indicate oversold conditions. If a chart has been indicating oversold conditions for a certain length of time, one can expect an increase in prices in the future.
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