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Role of Technical Indicators in Trading

When you’re trading forex, the market can be a wild beast. And there are lots of ways to tame that beast. So how do you go about it?

To start with, you need to know what kind of technical indicators are popular in forex trading. Technical indicators are tools that help traders gauge the health of a forex instrument and predict its future movement. These include things like moving averages, Bollinger bands, RSI (relative strength index), MACD (moving average convergence divergence), and EMA (exponential moving average). A quick disclaimer: the predictions are not 100% accurate. If they are, everyone would be rich.

But even though these indicators are useful for predicting the future of an instrument’s price movements, as humans we cannot possibly be sitting in front of the screen monitoring the movements every second! That’s where a good forex trading robot comes in: it will help analyse market information in real time and will execute trades based on your preset rules.

In automated forex trading, configuring the right set of indicators and entering at the opportune time can be the difference between a winning trade and a losing one.

There are a few popular technical indicators:

Moving averages: The average price of a forex instrument over a period of time. They can be used to identify trends and different areas in which to enter or exit a trade.

Relative Strength Index (RSI): A momentum indicator that measures the speed at which prices move up or down. You want to see this increase as you enter a trade, but not so much that it becomes overextended.

Others like MACD (Moving Average Convergence Divergence), Bollinger Bands and Exponential Moving Average (EMA) are also well liked. We will aim to cover these indicators in our future blog.