Trading Strategies: How to Identify Trading Opportunities With Moving Averages
In my opinion the two most important components of successful Forex trading are trading strategies and trading indicators. A strategy is simply a set of rules for taking advantage of the market behavior and applying it to trade. A trading indicator on the other hand is a way of looking at a particular currency that will give you an indication of its future direction based on various signals and trends.
Trading strategies are also called trading systems. They are used to identify which currencies are good to invest in and which ones need more work to be picked up. They are used to take advantage of price movement in a particular currency by buying low and selling high. Here I am talking about various technical analysis methods like breakouts, support and resistance levels, trend lines, Fibonacci levels, chart formations, replacements etc.
There are a lot of trading indicators on the market today. Some of them are technical indicators and some are fundamental. Technical indicators uses price movements as their basis, while the fundamental is all about macroeconomics or political events. But I would say that technical analysis is more reliable than the fundamental analysis when it comes to spotting trends and patterns. Let us take a look at some of the popular technical analysis tools.
Trend Line: Trend line is one of the oldest trading indicators and used by professional investors for years. It is a tool used to identify the direction of the price movements and trend of a particular currency. This is considered as a very reliable tool that gives signals for longer term trading strategies. The slope of the line indicates the strength of the market trend.
Relative Strength Index (RSI): This is another widely used tool for day trading strategies. The RSI measures how the currency market is performing compared to the rest of the markets. Most of the time, traders try to trade with the moving averages of the RSI. They try to align with the higher levels of the index so that they can get better chances of earning from their trades.
Moving Average Convergence (MAC): This is another popular tool for the short-term trading indicators. It can give traders an idea how the price moves over a period of time. Traders can make use of the moving average index or the oscillators when it comes to identifying trading opportunities. There are actually many more trading indicators that the professionals use in identifying possible trading opportunities.
Many experts believe that there are still many other potential trading strategies that the professionals do not know about. There is one more common indicator that the professionals are using called the Simple Moving Average Convergence Divergence (SMA). The SMA uses the MACD indicator that shows the relationship between the closing prices and the moving averages. There is actually nothing special about this MACD indicator other than it provides data on where the market is heading. Many traders who do not trade at the upper levels of the market consider it to be very useless.
However, most experts believe that the trading strategies that use the MACD indicator are still useful. Of course, as time goes by, technical studies will give better insights into how these indicators work. Traders should only depend on technical analysis when it comes to identifying the trading strategies that they can use to strengthen their position. If a trader is going to carry trade using the moving averages in the charts, they must learn to identify currency correlation. Currency correlation is actually considered one of the most important considerations for any kind of technical analysis.