Trading With Fibonacci and Other Forex Indicators

There are several forex indicators that can help you take the right decision in regard to your next move in the forex market. They provide the basis for decision making. Popular forex indicators are Fibonacci retracements, trends, gaps, moving averages, Stochastic Oscillator and Relative Strength Index (RSI).

Fibonacci Retracements:

Fibonacci retracements are a sequence of numbers developed by Leonardo da Pisa, the famous mathematician of the 12th century. The sequence of numbers represents the forex trading cycles. They are used while carrying out the analysis of technical indicators of forex market, as they help to determine the pullbacks taking place in the forex currency exchange market. Fibonacci retracements help to make predictions about the future forex market trends. One of the prime aspects of Fibonacci studies is to anticipate the changes that are likely to happen in the near future in the current trend.

It has been often observed that after a significant fluctuation has taken place in the price, it tends to retrace a major part of the original move. When the retracement of price happens, the level of support and resistance almost reaches the level of Fibonacci retracements. To ascertain the currency pullback, Fibonacci retracement level can be identified easily by connecting the current trend line from high to low. Considering the difference shown by the trend line, you can apply percentage ratios and get the results of pullback. The % ratios used more often in the currency exchange market are 23.6 %, 38.2%, 50% and 61.8%.

Relative Strength Index (RSI):

RSI is an important forex indicator that is extensively used by forex traders. It is usually calculated in the range of zero to hundred. It measures the ratio of the upward movements to downward movements and thus serves as a good basis to predict the future. When Relative Strength Index is 70 or more then it is believed that the financial instrument is over purchased. It means that prices have superceded the expectations of market. Similarly, when RSI is 30 or below, then it is considered to be an indication of the stocks being oversold. It represents the situation wherein the prices have fallen in much higher proportion than it was anticipated after studying the market trend.

Moving Averages:

Moving averages is yet another forex indicator that helps to determine the forex market trend. It involves plotting the two lines of forex momentum. The difference between the moving averages represents the momentum taking place in the forex market.

Gann Numbers:

W.D. Gann is a well known stocks trader who earned almost $50 million through currency exchange market. For trading, he deployed trading instruments based on the relationship between time and the movement in price. Gann used angles as well as lines in charts to identify the exact areas of support and resistance in order to predict the future changes in the trend.

There are so many forex indicators available to ascertain the forex market conditions that choosing the best and most relevant among them becomes too tough at times. Each one has a different criteria, so gain detailed knowledge on each of the forex indicators and then make your final selection.

Article courtesy of eToro