Forex indicators are the blood of the forex market. Indeed, Forex trading is not an easy task, but if you have the ability to identify patterns, events, and synergies, you will have a lot gained. One of the essential tools to try to anticipate forex movements and then take profit of it are technical forex indicators.
Now, we are going to talk about forex indicators and how you can work with these tools at the same time you take advantage of all the possibilities it provides. Also, check the best forex indicators.
What are forex indicators
Forex indicators are algorithms or mathematical calculations that have been used by traders and investors around the world since the beginning of trading. The difference now is that modern forex indicators are the same calculations but systematized and coded in software.
As knowledge is power, and success comes from experience, technical forex indicators can provide you with much information about the current condition of the market so you can make better and well-founded trading decisions.
As a trader, you never know what will happen in the future, but you try to anticipate movements with the tools you have. If all the information aligns in a specific direction, so you have a trading opportunity identified. Well, indicators provide that information in Forex.
Where to find forex indicators
Back in the years, technical indicators were complicated to follow. You had to learn it and how it works from books, and then applied it manually in charts printed — much work and time-consuming.
However, now the story is different. With the new technologies, you can find forex indicators in any forex broker platform. Usually, you can find the most popular tools also in Metatrader software and other white label and open source terminals for free.
Other indicators are premium or more sophisticated and not open to the general public. You should pay for it. It is not rare, but overall, most people in the forex market uses widespread and popular indicators.
But, which forex indicators you should choose? If you are looking for the best forex indicators you should understand that the best indicators is that which fits with your trading style and you can understand how it works, I am not telling you about how it is coded, but what is this indicators suggesting and how it hints that.
Most popular forex indicators
Not all forex indicators are the same, neither all traders are equals. It depends on many factors such as timeframes, volume, what time of trader you are, and how reliable is the indicator to show a market situation.
But, what makes a great indicator?
As some indicators are destined to answer specific information, you should evaluate in that regard, nothing more. Overall, a great technical indicator can be used by many traders and can be read easily.
It should be easy to understand, and it should provide useful information that can affect your trades and, or, make investing decisions. Finally, a great indicator interacts with other tools with success in offering even better information.
Now, let’s check the most popular forex indicators in the market.
Forex indicators for following trends
Forex traders use indicators that try to identify trends and follow then because they do believe that the trend is the best friend of a trader. So, they do need indicators that shows trends.
One of the most popular indicators in the forex world is the moving average. This indicator attempts to show a sense of the direction or trend of the market. They also provide trading signals is you read right, support and resistance and price targets.
There are four types of moving averages, all works with different setups as the averages can be defined by open, closing, low or high prices.
- Simple moving averages
- Weighted moving averages
- Exponential moving averages
- Smoothed moving averages
If you follow moving average, it will show you how the market is working in the whole picture.
Momentum Forex Indicators
Now that you know in what direction the market is moving, we can see how fast it is moving. There are no better indicators to check it than Momentum and the RSI.
Momentum is a forex indicator that measures the rate of decline or rise in pairs. It is a handy indicator to know the strength or weakness of the price action. Traders also use it as a leading indicator that shows the final phase of an uptrend or the end of a bear market.
Relative Strength Index
In a chart, the RSI assigns the instrument a number between 0 and 100, and then it compares against oversold or overbought conditions to determine how strong the movement. Usually, the levels of 70 and 30 are considered as overbought and oversold levels for the assets.
Indicators for Forex retracements
Now that we know the trend and the speediness, let’s check when the unit is going to turn direction in long and short term, so you can also have trading opportunities.
Commonly called the Stochastic, it compares the unit price closed relative to its price range in the given timeframe. The forex indicator is displayed with two lines, the %K and %D. Traders use it as an entry point indicator. They buy when one of the lines falls below 20, and the %K is above the %D, and then sell when it goes above 80 and %D is above %K.
Further read: Oscillator Indicator Guide