Every trading industry has its own set of conventions and benchmarks. There are certain key performance indicators in forex, just like any other trading domain. Thousands of Forex traders crash and burn within a few short weeks, because they do not have the valuable traits required to succeed in the long term:
- Delayed gratification
Using technical tools for forex
Currency is all about numbers, so it is pretty important that you be good with calculating rates on the fly without having to think for too long. Forex is a very complex entity and it keeps changing every minute, so you need something to make sense of changes as they happen. This will help you make smarter decisions about your investments in currency.
There are a number of forex tools that are available to traders, but many do not actually bother understanding how they work. Good tools will help you:
- Understand the key performance indicators
- See which direction a particular currency is trending
- Understand forex cycles or periods where currencies gain and lose value periodically
Some important tools
Here are some of the most important tools used by forex traders in order to gain more profit:
- Relative strength index (as measured between 0-100)
- Stochastic oscillator (give you some valuable trading signals to buy or sell)
- Gann numbers – tracks the relation between time and changes in forex rates
- Elliot wave – shows whether the overall trend for a particular currency is positive or negative over the long term
- Gaps – these are literally gaps on the bar chart, where you can see if the lowest low rate on a particular date is higher than the highest up rate from the previous day
- Coppock curve – a helpful tool to predict a bear market and make smarter investments in forex
- Directional moving indicator – tells you whether a particular pair of currencies is generating movement and is worth investing in.
A purely technical analyst will not be concerned with the larger trends in the forex market, because it is her job to keep monitoring the key metrics using the tools above. However, if you want long term profit, you need to be smart enough to use these tools to your advantage.
If you are just starting out with forex trading, the above tools and terms will make very little sense to you. Pick one tool, observe it over the course of a few days and see how it relates to forex trends. You will gain some understanding of how you can use it to predict forex rates.
Do the same with the others and before you know it you will know them like the back of your hand. More importantly, you will know which tool is the most helpful at any given time.