As a forex trader, most of the common scenarios are how much you earn? And the answer is probably the most ideal. So, I want to share something that I feel it’s good to know for all.
Forex Trading Indicator
Yes, it is the most possible important thing in forex. Every forex trader must be known about it. And how to utilize the best trading indicators is also important. So, let’s make it easy–
1: Moving Averages
Many forex traders use moving averages of 1 type or another to get a sense of the underlying direction or trend of the market. Using 1 or more moving averages can also be used to provide trading signals, such as when a shorter-term moving average crosses above or below a longer-term moving average.
The 4 fundamental types of moving averages that forex traders frequently use in trading currency pairs and for general technical analysis purposes are:
Simple moving averages Exponential moving averages Weighted moving averages Smoothed moving averages
The averaging process used can be performed on the high, low, open, or closing exchange rates. The close is the most popular.
2: The Relative Strength Index
The RSI was the brainchild of the famous technical analyst J. Welles Wilder and has been used by traders since first being published in 1978. It now holds a top position among the technical indicators used by traders, and most technical analysis software includes it.
You can compute the RSI indicator by comparing the amount of a currency pairs’ most recent exchange rate increases to that of its most recent exchange rate drops. The RSI has an adjustable time period parameter and most traders use the default 14 periods based on Wilder’s preference.
Technical analysts refer to the RSI as a bounded oscillator, since it fluctuates inside a range bounded by an upper value of 100 and a lower value of 0. Since its value does not have the same vertical scale as the exchange rate, the RSI is typically displayed below the exchange rate as an indicator box.
3: Bollinger Bands
Bollinger Bands were created by John Bollinger in the 1980s to provide trading signals that adapt to market conditions. They are typically drawn using a given number of standard deviations around a central moving average.
A common set of parameters for Bollinger Bands involves drawing lines 2 standard deviations around a 20-period simple moving average. Since standard deviations are used as a measure of market volatility, this gives traders a sense of the risk involved in taking positions, as well as a sign that an exchange rate movement is overdone and hence ripe for a correction.
4: The MACD
The Moving Average Convergence Divergence (MACD) indicator was invented by Gerald Appel. The MACD histogram is unbounded and it generally appears below the price action and uses the same time scale as the exchange rate chart it corresponds to.
The MACD is based on the difference between 2 exponentially weighted moving averages (EMAs); usually a faster 1 of 12 periods and a slower 1 of 26 periods. It includes a smoothed moving average (SMA) line of usually 9 periods used to signal trades.
The image below shows the MACD oscillator in red computed based on closing exchange rates with a histogram computed using a slow EMA of 26 periods versus a fast EMA of 12 periods and an SMA line of 9 periods in the indicator box below a candlestick chart of the exchange rate for the EUR/USD currency pair.
Using these indicators is highly recommended by the professionals also. Because using these, you can analyze your charts more detailed and graphically. By the way, a market analyzer called Pipswin is great if you have it.