Nadia Jenkins

Many Forex traders waste their time looking for a perfect moment when they can enter the market, or for an opportunity that tells them exactly when to buy or sell. While this search is undoubtedly fascinating, it always ends up with the same result. What is clear is that there is no single way for a trader to succeed in the Forex market. All successful traders quickly learn that they need to use more than one trading strategy indicator in order to help them determine the exact time they need to enter or exit a Forex trade.

In this article, we examine four popular trading strategy indicators, which the most profitable global traders rely on.

1: The Trend Following Tool

Many traders make money from the Forex market by taking positions that counter the existing price trend. However, for the vast majority of traders, an easier approach to making money is recognizing the direction of a major trend and looking to trade in the direction that the trend takes. In this case, a trend following tool comes into play. Most traders fail to understand how trend-following tools work and, instead, they use them as standalone trading systems instead of a trading strategy indicator. Although this may work on a few occasions, the actual purpose of a trend-following indicator is to let you know whether you should enter a long or short position.

2: Trend Confirmation Tool

After employing a trend following tool, which lets you know whether the main trend of the currency pair you are interested in is moving down or up, or horizontally, it is now time to confirm the trend direction. But how reliable is a trend confirmation indicator? Trend following tools can be whipsawed. For this reason, Forex traders need a way to tell if the trend-following tool is correct. As a trading strategy indicator, the trend confirmation tool can be used to predict buying or selling signals. What is important is to see if the trend confirmation and trend following tools agree.

3: The Overbought or Oversold Tool

While Forex traders generally make their trades in the general direction of the prevailing major trend, it is still vital that you decide if you are more comfortable jumping into the market as soon as the trend establishes itself or when there is a pullback. In simple terms, if there is a bullish trend, you need to make up your mind whether you want to buy into strength or profit from weakness. When you make this decision quickly, you are in a position to enter a trade when an uptrend or downtrend is confirmed. Otherwise, you could choose to wait for a time when there is a pullback on the major trend, hoping that it will provide a low-risk opportunity. To make these decisions, you need to have an overbought/oversold indicator handy.

4: Profit-Taking Tool

Finally, we examine a trading strategy indicator that helps the trader to determine the point at which they need to take a profit on a winning trade. In this case, there are several choices to choose from. As a matter of fact, the popular 3-day RSI fits nicely into this category of indicators. What this means is that a trader who holds long positions should think about taking profits when the three-day RSI rises above 80. Conversely, a trader who is holding a short position should think about taking profit when the three-day RSI sinks below 20.

Conclusion

If you find yourself hesitating to take advantage of the lucrative Forex market while waiting for an obvious point of entry, you could be left on the sidelines for a long time. By mastering how to read a trading strategy indicator and using these indicators to understand more about market movements, you can develop suitable strategies that will help you choose the most profitable times to invest in a currency pair.