Forex Day Trading Technical Indicators are tools used by the traders to make a prediction for various factors involved in their day-to-day trading. These technical indicators may prove to be profitable if used in proper context.
For example, a technical indicator may make forecasts on the direction at which a particular currency pair may head next. They can also help you to determine where to enter or exit the trades. If these indicators are used correctly, they can make you earn a lot of money.
Moving Averages are probably the most commonly used Forex Day Trading Technical Indicator. Other popular indicators are, Bollinger Bands, Pivot Points, MACD, etc.
Many forex traders may think that by simply downloading the indicators and then mechanically applying them it into their trading will ensure the profitability, which is just a myth. You must realize that there is a lot more to using indicators than just asking them to generate buy/sell signals or pin-point exact entry points.
For example, the moving average methods are to show the direction of the trend. The most common are the simple 200day ma, 100day ma, 50day ma, 35day ma and 21day ma. But don’t forget, they are only valid on daily graphs. According to the experts, a signal can be considered to be good when the 50day ma is crossed by the 13day ma.
The moment it happens, one must trade in the direction of the cross. The problem with this is that these types of ‘crosses’ do not occur often enough for traders to exploit them. This can even lead to a situation where traders are seeing what they thought was a cross now finds to be reverse and uncross. The situation may also force you to chase for trying to anticipate a cross. And all these are required if you wish to be in touch with the live market.
Other problems with forex day trading technical indicators involve issues with the quotes and prices given to you by your broker. Forex brokers are the market makers and different brokers will give you different quotes and prices at a specific point of time. A different price could lead to a situation where different traders, trading the same market have the same indicators giving them different responses.
Finally, you should remember that these indicators were developed when real time information did not exist. Therefore, try to figure out the limitations of day trading technical indicators and realize that technical analysis should incorporate just one part of your trading strategy.
A recent survey showed that a mere 26% of all traders use technical analysis and indicators, compared to 41%, who said they use fundamental analysis. Your trading must be backed with studies and analysis of the market and other resources and not solely by day trading technical indicators.
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