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The Changing Importance of Forex Trade Signals

By Edited Dec 13, 2015 0 0

Forex trade signals refer to any number of different indicators that can be overlaid onto a forex pricing chart. From the chart which normally just has time and prices on it to start with, you can begin placing specific indicators that will help you to highlight signals that you are looking for.

It is usual for the candlestick chart to be formatted so it is simple to separate bullish and bearish periods. The individual candlestick body illustrates the starting and closing price of that particular session.

The contrasting colors represent a bull or bearish session. Connected to either end of the main body are lines referred to as shadows which show the price highs and lows of the trading session in question. When a candle body is shown whithout any shadows this tells us that the closing price was the highest or indeed the lowest price of the session depending on the color of the candlestick body. There are over 20 principle candlestick patterns which are recognizable by experienced traders and if you haven't at least heard of these patterns such as :- long periods, short periods, spinning tops, head and shoulders and double top then it would be a good idea to do some research and learn to recognize them and importantly what they are signaling.

One indicator which essentially provides a relative definition of a high and a low is the Bollinger Band indicator. Essentially this consists of 2 bands which signal the high and low price, obviously the upper band denoting a high price. The signal is stronger the closer the price line moves towards the bands. As an example a trader might recommend a buy when the price line is close to the lower band, meaning a low price to buy into the market, as it will be more likely that it will move up and increase in value. An alternative stratregy is to buy if the price breaks above the upper band and sell when the price falls below the lower band. The trader must interpret these signals in relation to their complete strategy.

Another popular indicator is the RSI - Relative Strength Index. The strength and weakness of historical and current currency prices are measured here formed on the data of completed trading sessions. A currency tends to end the session higher which usually points toward a stronger market and conversely will close lower signalling a weaker market.

Moving Average Convergence Divergence - MACD. This indicator shows the difference between a fast and slow moving average of closing prices. The MACD is a trend following indicator and signals a change in the trend when either the MACD line crosses the signal line, the MACD line crosses 0 or the divergence between the MACD line and the price line. The interpretation is that if the MACD crosses upward through the signal line it is a buy signal and it is a sell signal if the MACD crosses downward through the signal line. Various other signals can be used and they rely mostly on the distance between the MACD and signal line and also the direction of travel.

I have mentioned just a few currency trading signals, however it is important that if you intend to trade forex successfully you must understand the candlestick chart thoroughly and get comfortable with a number of forex trade signals indicators in order to understand forex chart trends and recognize chart direction changes.



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