What indicators choose Forex traders (Part 1)

Using indicators in the Forex market in itself can be a controversial issue. Since each Forex trader uses a certain set of tools that suits him according to the style and nature of trading.

Types of Forex Transactions

All transactions can be divided by duration:

• there are short-term transactions: from a minute to one hour,
• medium-term: from an hour to several hours,
• long: from several hours to a day
• and long-term investments that can last from a few days to weeks or months.

The set of indicators and their parameters is significantly different depending on how long a trader keeps a particular transaction open.

For example, the common Moving Average (MA) indicator, which has sensitive settings, is suitable for short-term deals. But it fully proves insolvency for longer timeframes, on which longer transactions are carried out. A significant increase in noise and false signals will occur. Coarse settings on short timeframes are quite useless due to the delay.

Therefore, it is worth noting that any technical indicator should adapt to the trading timeframe on which the transaction is carried out. This is especially true for moving averages and indicators based on them.

Types of Indicators

It is also worth to note the types of indicators, which are also very conditional. They can be divided into trend, oscillators and volume indicators. In addition, each of the types is intended for a certain trade. Although the possibility of intersecting several types of indicator in one is not excluded.

Trend indicators indicate the direction of market movement. They indicate the further direction of the market, the possibility of a reversal and the emergence of new dynamics. They show themselves well when there is unidirectional movement on the market. Their delay is a significant drawback.

Oscillators display the price movement in a narrow and lateral price range. They are used, as a rule, in a volatile not unidirectional market. They are leading indicators. Due to the leading factor, they can give false signals.

Volume indicators are one of the controversial and less popular indicators. They reflect the relative trading volume in the market, which  has not received significant spread due to the nature of the Forex market.

Due to its limitations on some parameters, traders try to combine several different indicators, adjusting them so that they cut off false signals and give a more complete picture of the market.

In the next article, we will consider examples of the most popular indicators, such as the Moving Average (MA), MACD, Ichimoku and others.

Anton Hanzenko