The best traders follow exactly what is happening in the market intelligently and are rarely surprised by events. They also use the many tools available to better manage their activities. Indicators are often such tools. The ones that attract the most attention of traders are presented in this article.

Currency Strength Indicator

Currency trading is fundamentally different from trading other assets as you are exposed to not one but two different assets in the form of two different currencies. Therefore, forex trading requires the development of special skills. One of the most important is measuring the strength and weakness of different currencies. This is where the currency strength indicator comes in handy.

It is an indicator used for technical analysis to obtain information on the strength of a given currency against a basket of other 7 currencies as each currency has a certain degree of strength against other currencies. CSI is based on an algorithm that takes price and volume into account.

The basic working principle of the CSI is to serve as a filter in decision making. This allows you to quickly determine whether, for example, the US dollar is strengthening or weakening. Based on real-time data on the current market, we can judge which currency is overbought and which is oversold.

In general, it is important to compare market sentiment across different time frames when using the CSI.

Another equally important issue is to remember that the strength of a given currency is always determined for a given time frame. For example, the Euro may show strength today, but be weak on a monthly basis.

The CSI is used as additional confirmation and is not sufficient on its own to make decisions. Even though it does not provide 100% accurate signals, it is very useful in determining the trend direction.

Generally, we can distinguish two types of CSI in terms of visuals.

In the case of the first one, each currency is represented by a line moving on a uniform field, therefore all currencies are arranged in a series of different lines.

In the second type of indicator, each currency is shown as a bar divided into units (squares) - the more units, the stronger the currency.

Break Even Point

The break-even point for a trade or investment is determined by comparing the market price of an asset to the original cost; the break even point is reached when the two prices are equal.

In corporate accounting, the break-even point formula is determined by dividing the total fixed costs associated with production by the revenue per individual unit minus the variable costs per unit.

When calculating the BEP for our transaction, we can consider it as a profitability indicator for our investment. If the price of an asset has increased so much that we are above the break-even point, it means that it is profitable. However, if we are below BEP, it means that the position is at a loss at the moment.

Many traders use the BEP to determine where they place their stop loss when the value of their investment is temporarily higher than at the time of purchase. Thanks to this, they ensure that the position will not be closed with a loss.

Means for company

The break-even point is the achievement of a situation in the enterprise in which the revenues fully balance the costs and do not exceed them. In practice, this means a situation in which the company does not bring either profit or loss.

Stop loss

Stop loss is a specific type of pending stop order. The order is tied to a specific position and closes it when the price goes down or up and reaches the Stop Loss level. Buy trades defend a sell stop order as a stop loss. Conversely, sell trades defend a buy stop order as a stop loss.

Source: investopedia.com