Introduction to Indicator Series

A Little Introduction

If you have ever peeped at a trader’s screen while he’s deep in the zone, you will realise the insane clutter of jagged lines and coloured rectangles, and yes a ton of numbers constantly flickering on the screen. Well that’s a forex chart for you. As a beginner, you’d probably be wondering why your screen only reveals a relatively neat set of candlesticks (the coloured rectangles). That’s because a professional trader would have mastered the different ways to read this deceptively simple-looking chart, and these ways are what we call indicators. 

Omada’s slew of verified signal providers all have their own unique set of indicators that works well for them and that’s what is important as a trader. In The Indicator Series, you will be exposed to a multitude of indicators in the forex world that are used in different combinations by our signal providers! There are mainly two categories of indicators widely used, the fundamental and technical indicators.

A Little Introduction

Fundamental analysis in forex largely depends on economic factors. That means we are looking at events happening around the world that could result in a rise or fall in the relative value of currencies of the different countries. For instance, a country struck by natural disaster would need foreign aid, consequently, the value of their currency would likely drop. This type of analysis also uses fundamental indicators like Gross Domestic Product (GDP), the US non-farm payroll, interest rates and retails sales. Such signals are useful in giving traders a rough direction of the currency movements of respective countries.

Technical Indicators

Technical analysis would focus more on currency charts. This form of analysis relies heavily on past information and trends in order to project a forecast of the direction of currency movements. As such, there are two subcategories of indicators in technical analysis: leading and lagging. A leading indicator gives a signal before the new trend or reversal occurs, while a lagging indicator gives the signal only after.

Leading Indicators

Leading indicators are helpful in predicting what prices will do next in order to allow traders to predict currency movements ahead of time. The main concept behind this indicator is to measure how “overbought” or “oversold” something is. This is done with the assumption that if a currency pair is “oversold”, it will bounce back. For instance, when a certain currency has been declining for a while and is reaching one of its all-time lows, a trader may see this as a good time to buy because it is likely due for a rebound. However, this could also be risky as sometimes such downward trends don’t stop and this could lead to major losses.

Lagging Indicators

Lagging indicators provide delayed feedback. Basically, these tools give you a signal only after the price movement has passed or is in progress. Hence, they are useful in confirming a price trend before the trader makes a decision to enter a trade. The main difference between a leading and lagging indicator lies in the fact that lagging indicators give traders confidence that they have made a correct assumption to enter a trade, as opposed to a leading indicator that provides a particular signal for entering the market. Let’s take Moving Averages (MA) for example. This indicator measures the momentum and direction of a certain trend. Buy and sell signals are generated when the price line crosses the MA, so the trader can make a judgment of whether a change in trend is likely to occur and subsequently enter a trade.

What if the signal provider you are following is willing to take far greater risks than you’d ever dream of? You may end up losing far more money than you can afford! Omada allows for followers to customise their own risk settings. So, the next task you need to manage is to really understand your risk appetite and accurately allocate the right amount of money reserved for copy trading. You also need to know the risk settings available on the platform you are using. One basic risk setting that Omada offers is fixed lot copying. Once you have allocated a certain amount of funds for copy trading, that will be your equity. Based on your own equity, you can choose a suitable lot size for all the trades that a particular signal provider executes. This is important because it tells you how much risk you are taking per trade. As such, you certainly shouldn’t blindly copy a signal provider without at least being aware of risk settings!

Expert traders often use a combination of vastly different indicators to form their own analysis of the currency directions. These indicators may sound logical and even simple to understand, but using it appropriately to accurately make forecasts is certainly no easy feat. Copytrading has made trading easier for many retail traders out there, but finding a good signal provider who knows how to use the tools of  the trader effectively can be a big challenge. Thankfully, with Omada’s verified signal providers, you are in good hands! So stop hesitating and join us now!