The Best Indicators to Use for Day Trading on the FOREX Market
- The currency market can be profitable for the nimble day trader.Michael Hitoshi/Photodisc/Getty Images
As the world's largest financial market, and operating with a 24/7 trading window, the Forex market has come into its own as a destination for day traders to test their skills and try to turn a profit at the end of the day. Most traders use tools called indicators that are applied to online price action charts to help anticipate the next move of the currency they're trading. Different indicators are employed according to personal choice but all with the same goal -- to provide an edge in the Forex trading arena. - According to Forex Realm, the concept of using a moving average (MA) to trade financial markets was popularized by Richard Donchian after World War II. While Donchian used a single moving average to determine the best time to buy or sell, modern day traders often use combinations of two or three moving averages on their screen, and watch for areas of confluence or divergence between the indicator lines to determine the best time to buy or sell. Though many Forex traders make moving average study an integral part of their daily trading strategy, keep in mind it is what is called a lagging indicator, which simply means it trails real-time market action. It is best used in conjunction with other indicators to confirm a market trend or reversal.
- Another type of Forex indicator that is useful for the day trader is called an oscillator. The two most popular are the Stochastic Indicator (SI) and Relative Strength Index (RSI). Oscillator indicators are most useful to help determine overbought or oversold markets, a condition that lends itself to a pending reversal and opportunities for short-term profits. Like the moving average indicator, using an oscillator by itself can be dicey because the market can certainly continue to move in the trending direction for some time after reaching overbought or oversold territory. The SI or RSI are best used in conjunction with other indicators to verify the prospect that a price turn is imminent.
- According to ForexIndicators.net, Elliott Wave Theory was first proposed as a trading methodology in the 1930s by accountant Ralph Elliott. Famous traders like Robert Prechter and Paul Tudor Jones are adherents to Elliott's work. The concept of applying wave trading to the Forex market for short-term trading is not complicated though, like every other indicator, it takes time and practice to get a feel for how it works. Elliott based his market interpretation on the idea that price action is cyclical in nature and certain patterns repeat themselves. Wave theory simply teaches the day trader to define the Forex market into five main phases. Elliott wave theory works on any time frame.
