The 5 Effective Forex Indicators That Traders Should Know
Many forex traders will use different methods of forex trading. One of these methods of forex trading is the use of forex indicators. Forex indicators are technical forex trading tools that are placed on forex charts and help to determine the forex price chart movement.
Among the most commonly used technical indicators are:
Moving Averages Forex Trading Technical Indicator RSI MACD Bollinger Band Technical Indicator Stochastic Oscillator Indicator
These forex indicators are used by traders to identify forex trends, analyze forex trends and also analyze forex trend momentum.
To trade with these indicators forex traders will come up with a few forex trading rules that will determine that this is when to open a forex trade based on the specified forex trading rules. These forex trading rules form what is known as a forex trading strategy.
This forex trading strategy which is a set of forex trading rules will be used by traders when trading the FX market. To come up with a forex trading strategy that is indicator based forex trader will first need to know about these indicators used in the forex trading market.
The five commonly used technical indicators are explained below:
Moving Averages Indicator
Moving average forex indicator is used to identify forex trading opportunities by determining the overall trend direction of the FX market. Forex moving average is drawn as a line that shows the average of forex prices on the forex chart.
When the forex market is moving in an upward forex trend the moving average forex indicator will also be moving upward.
When the forex market is moving in a downwards trend the moving average forex indicator will also be moving downward.
Forex traders will use two moving averages a shorter forex period moving average and a longer forex period moving average - forex signals will be generated when both of these moving averages are heading in same direction.
An exit forex signal is generated when moving averages begin to move in opposite direction.
Forex Trading with Moving Average Indicator
RSI Indicator
RSI indicator is used to determine if forex prices are generally closing higher than where they opened or if forex prices are closing lower than where they opened.
RSI indicator values above 50 signals that forex prices are closing higher than where they opened RSI indicator values below 50 signals that forex prices are closing lower than where they opened
When forex trading using the RSI indicator forex buy and forex sell trading signals are generated when the RSI moves above or below the 50 center line mark - RSI indicator values above 50 is a buy signal while RSI technical indicator values below 50 is a sell signal.
The RSI indicator is drawn with values of between 0 and 100. RSI 50 is the center line mark used to generate forex trading signals when the RSI indicator moves above or below this center-line mark.
RSI technical indicator areas below 30 are used to show over-sold levels RSI technical indicator levels above 30 are used to show over-bought areas
Forex Trading with RSI Indicator
MACD Indicator
MACD indicator is is used to analyze the momentum of forex trends.
The MACD indicator is used to generate forex signals when MACD moves above or below the zero center line mark.
MACD indicator above Zero center-line is interpreted as a buy signal. MACD indicator below Zero center-line is interpreted as a sell signal.
MACD indicator is comprised of two lines - MACD line and MACD Signal Line - MACD line is drawn as a red line while MACD Signal line is drawn as a blue line.
Forex Trading with MACD Indicator
Bollinger Band Indicator
Bollinger bands forex indicator uses a 20 period moving average as the middle Bollinger band and then calculate the forex price movement magnitude from these moving average line using standard deviation.
When forex price volatility is high the Bollinger bands will widen When forex price volatility is low the Bollinger bands will narrow
When Bollinger bands widen the forex price trend is likely to continue moving in the same direction whereas when Bollinger band narrow the forex price is likely to breakout and move in direction of the forex price breakout.
Forex Trading with Bollinger Bands Indicator
Stochastic Oscillator Indicator
Stochastic oscillator forex indicator is used to determine overbought and oversold levels. Stochastic oscillator values below 20 are interpreted as oversold levels and forex stochastic oscillator values above 80 are considered as overbought.
Stochastic oscillator forex indicator is made up of two line %K and %D lines which oscillate between values of 0 and 100. Forex Trading with Stochastic Oscillator Indicator
