Market Indicators – Forex Academy

Indicators are a tool that Forex’s technical analysis, traders, and statisticians use in financial markets to take a statistical approach rather than a subjective approach to trading. They will use things like money flow, volatility, timing, and trends to get a better picture of the potential price movement. Thousands of indicators currently available, which means there is a lot of debate about which are the best.

Advanced Indicators

Advanced indicators are one of the two main types that are available to traders. They tend to anticipate any price movement and predict the future. They tend to be used for trading in ranges, as they may give signs of a potential break, which of course is very powerful information to have.

Some of the most popular forward indicators are the stochastic oscillator, and the relative force index RSI. The worst part of these indicators is that can pre-empt events and perhaps give false signals occasionally. This is because most people will use something more than an advanced indicator, using it as a secondary indicator in addition to simple price action. Just as with most indicators, there is a complex mathematical formula that shows the moment and where the market will go.

Back Indicators

In contrast, retrospective indicators tend to follow the movement of prices. They are much more useful in the course of a well-defined trend, as they tend to give signals after the most popular indicators. This, unfortunately, comes with the disadvantage of being less profitable, even though they are more reliable. Retrospective indicators have been popular for years and are still one of the most basic indicators that traders will use.

Two retrospective indicators would be Bollinger bands and moving averages. As an example, the moving average is the estimate of the average price of the last “N” candles, which by virtue of its definition excludes the current price. However, in a trend, this information can be very useful, as it shows that the average price is going up or down. Again, as we mentioned earlier, these indicators are typically part of a larger trading system.

There are several types of indicators:

Oscillators

Oscillators are by far the most used technical indicator, usually subject to some sort of range. Generally, there is a complete range between two values that represent respectively the overplayed and over-bought conditions. Typically, there is some kind of line or indicator that lets you know when the market is going too far in one area or the other. A couple of examples could include the stochastic oscillator, the moving average convergence divergence, and the feedstock channel index. Even though these could measure the condition of over-bought and overbought with different formulas, in the end, they work in the same way.

Indicators with No Range

The non-rank indicator is much less common, but will usually be used to form signals in a trading system to show strength or weakness in a trend. Unlike oscillators, they generally do not have a set range. For example, the accumulation/distribution line indicator that measures the flow of money to a value is an example of an indicator without a range. However, in the world of Forex, you will realize that this is almost impossible to measure, however, some volume variations are going to be offered by forex brokers, using information from their own servers, which is only a part of the market.

The Use of Indicators

While there are some trading systems that use indicators only, these do not tend to be commonly used today. One of the most common systems that only use indicators is the system of crossed moving averages. This consists simply of graphing two moving averages on a graph, which (if you remember), are simply a mathematical average of a specific amount of prices over a certain amount of time, being one of the moving averages the slowest, and the other the fastest. The quickest is the one with the fewest candles, which will make you change direction faster. The less rapid one represents a more stable environment because it takes much more information to move around.

But if the fastest line crosses over the slowest line, this can mean that the moment is moving up, which is a sign of a buying opportunity. Otherwise, if the moving average falls below the fastest line, this is typically a signal to sell. With the system of crossed moving stockings, you are constantly on the market, buying and selling when these lines intersect. The biggest problem is that you need a strong trend to make profits. In a market that is not very active, you could be crushed.

As a general rule, the most beneficial thing is to combine support and strength with those indicators as it gives you different types of confirmation for your trade. A typical example would be to look for support, a particularly encouraging candle, and then buy a signal formed on the stochastic oscillator. The typical system will have a certain number of steps to go through to put money to work. Beyond that, you begin to pay attention to money management, and then before you realize you will have an entire system set up. You should think of the indicators as a tool, not the “holy grail” that so many traders are always looking for. As these increase your chances of success, nothing is perfect, and you should learn how they work and when they work if you are going to use them in your trades.

Since there are literally hundreds of indicators that can be used, preferences play an important role in selecting those who have more security for you. For what it’s worth, the more I trade, the less I use indicators to make decisions. When I use them, they are usually secondary and tertiary reasons.

Among all the regular economic announcements published by governments of major world economies, the most important is the US non-farm payroll report (sometimes called simply NFP) which is published by the United States Bureau of Labor Statistics. The market can react rather violently to these reports and there was a time when trading in these ads was a well-known strategy. Today, however, you often see most of the big players remaining out of the market during these ads.

What is the Non-Agricultural Payroll Report?

The non-agricultural payroll announcement is simply the US employment report, which excludes agriculture-related jobs, unincorporated self-employment, nonprofit organizations, and military and intelligence agencies. In other words, it is a report of the “common worker” of the United States. The report is published on the first Friday of each month at 8:30 am EST and summarises the number of jobs created or eliminated from the economy during the previous month. For example, if it is the first Friday of June 2018, the report shows the employment for May 2018. This gives us roughly an idea of how healthy the US economy is, which of course has a big influence on the dollar. News that affects the market

Other central banks also have employment figures, obviously, but Forex traders don’t pay them as much attention as the dollar is the world’s reserve currency. All major Forex pairs are somehow connected to the dollar, so it makes sense that it has a massive influence on the way money flows across international borders.

How the Report Is Broken Down

Beyond simply reporting on how many jobs are created or eliminated, the non-farm payroll report also disaggregates jobs by sector. Some of the sectors include health care, wholesale, retail, transportation and storage, mining, construction, and many more. This will give you an idea not only of how the US economy is growing but also of what specific sectors are growing. This information is also very useful for stockbrokers. For example, if you see that employment in health care is increasing, that means that there should generally be more demand for that sector. A stock trader would seek to buy HMO or some other type of company from the sector in question.

Consensus

Normally, about a week before the announcement comes out, you will begin to see predictions about the outcome of the announcement. For example, some analysts may expect to create 350,000 jobs by the previous month, while others may have higher or lower expectations. When the ad goes out as expected, it usually doesn’t have much impact on the Forex markets. However, if it veers sharply in either direction, the dollar will generally react quite strongly. This is compounded by the lack of liquidity at the time of the announcement. If you have a broker with floating spreads, you will see that spreads will expand during the announcement because most large funds will be withdrawn

Unemployment Rate

The unemployment rate is also part of this advertisement, as it is published simultaneously. The higher the unemployment rate, the weaker the economy. This is because employers will not hire workers if the economy is slowing down. It is for this reason that a rising unemployment rate is usually bad for the dollar. On the other hand, if the unemployment rate continues to decline, this means that more people are working, which means that the Federal Reserve is more likely to raise interest rates. At that point, the dollar will appreciate.

Critique

As with almost any other government data, there are many critics out there. For example, the official unemployment rate published by the Bureau of Labour Statistics is known as “U3”. It is calculated by dividing the total labour force by the number of unemployed and multiplying it by 100. One problem is that the US government sees those who are working part-time as employees, regardless of whether they want to find a full-time job. It also sees employees as those who perform at least 15 hours of unpaid family work and those who perform temporary work. To be part of the workforce, he must have been looking for work in the last four weeks. Unfortunately, it does not count those who have “given up” as unemployed, because it does not keep them in the workforce. Most people will consider the “U6” as the most predictive and correct indicator. The U6 indicator is an employment report that includes part-time workers to provide a stronger economic outlook.

Most traders consider the non-agricultural payroll announcement to be the best numbers we have to work with, so the market will pay attention to them. However, in the end, it is not very correct, because, if you look at the data a year later, you would see that they are almost always corrected and revised, usually downwards.

The Bigger Picture

Foreign exchange markets have changed quite dramatically over the past decade and, although the non-farm payroll report remains very important, it is no longer as important as before, mainly because foreign exchange markets are beginning to move on different factors. For example, we are beginning to see that the dollar acts as a security currency more than anything else and traders accept more than the employment situation in several countries (including the US) will be somewhat fluid. Occasionally you get the anomaly of a bad or good month, so keep in mind that most traders are starting to see the non-agricultural payroll report as a trend to follow, not necessarily the cornerstone of indicators to see which currency to trade.