- USD/ZAR pair is one of the most closely followed forex pairs in the country and FX traders will be wondering how to take advantage of the changing performance of the pair over time.
- Traders in the country pay close attention to the pair’s performance and seek to take advantage of major short-term and long-term price fluctuations.
- For this reason, the use of technical indicators, and often a combination of a few indicators, can help traders more accurately gauge the direction of the price of the pair.
Forex trading has long been a popular method of accumulating and safeguarding wealth in South Africa. However, the underlying economic issues of the economy have adversely affected the performance of its currency, the South African rand (ZAR).
The USD/ZAR pair is one of the most closely followed forex pairs in the country and FX traders will be wondering how to take advantage of the changing performance of the pair over time.
Since forex trading is a highly technical affair, traders can rely on technical indicators to provide signals for when to buy and sell the rand against the dollar.
But which particular indicators are the most effective at identifying pressure points and how to use them to their full effect? – Let’s find out.
USD/ZAR technical indicators and how to use them
First and foremost, we must understand that each technical indicator comes with a set of advantages and disadvantages, which means that they are most effective when used in tandem to measure volatility and trading volume and the market to gauge where the price of the pair could be headed next.
Below we will overview some of the technical indicators that could prove effective in generating accurate buy and sell signals for forex traders.
Fractals
The fractal FX trading indicator is a relatively complex tool that consists of five consecutive price bars, with the middle bar having the highest high (or lowest low) surrounded by two lower highs and two higher lows.
Typically, a bullish fractal is formed when the middle bar has the highest high surrounded by two lower highs and two higher lows.
On the other hand, a bearish fractal forms when the middle bar has the lowest low surrounded by two higher lows and two lower highs.
Using fractals can help traders get a better view of the price action and have a higher chance of accurately gauging the short-term price direction of the USD/ZAR pair, or any other financial security.
The Relative Strength Index (RSI)
The Relative Strength Index, or RSI, is a momentum oscillator that measures the speed and change of price movements. The indicator shows overbought and oversold conditions on the price chart, which helps traders take adequate measures and take advantage of price fluctuations.
For example, if the RSI is higher than 70 for the USD/ZAR, then it is highly likely that the pair is overbought and traders can open short positions.
Conversely, if the RSI is lower than 30, then the pair is oversold and traders can go long.
Bollinger Bands
Another popular technical indicator, Bollinger Bands consist of a simple moving average (usually 20 periods) and two standard deviations plotted above and below the moving average.
The primary function of Bollinger Bands is to measure volatility on the market and identify potential price reversal points.
For example, when the price of the USD/ZAR pair touches or exceeds the Bollinger Bands, this could be seen as an overbought or oversold signal, depending on which bands the price touches.
The MACD
The Moving Average Convergence Divergence, or MACD for short, is a momentum indicator that follows the price trend and shows the relationship between two moving averages of USD/ZAR, or any other security.
The crossovers and divergences that occur on the price chart are indicative of potential trend changes. When the momentum of the pair is shifting, the MACD is likely to show this, which gives traders a window of opportunity to place new orders in anticipation of the changing trend.
Fibonacci Retracement Levels
Last but not least, Fibonacci Retracement Levels are depicted as horizontal lines that indicate potential support and resistance levels on a price chart.
In the case of the USD/ZAR pair, Fibonacci levels would show potential areas where the price may retrace before continuing in the direction of the trend.
Retracements are a natural part of price charts and Fibonacci levels help traders sift through market noise and more accurately identify potential trend pullbacks and continuations.
Conclusion
Technical indicators are a vital part of the forex trading experience. The USD/ZAR pair is one of the most important currency pairs on the African market and typically shows a good picture of how the South African economy is performing over a period of time.
Traders in the country pay close attention to the pair’s performance and seek to take advantage of major short-term and long-term price fluctuations.
For this reason, the use of technical indicators, and often a combination of a few indicators, can help traders more accurately gauge the direction of the price of the pair, as well as the vital points on a chart that show imminent trend shifts and overbought/oversold conditions as they arise.
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