There are many forex market indicators used by traders. Indicators are used in analysis and trade decision making. They help traders to predict how the price of a currency pair will move in the market. When you make a good prediction, you make a good profit.
To become a better trader, you must be good at using indicators. They are embedded in every forex trading platform. Learn how to use them well and combine them with a good strategy for forex success.
What Are Technical Indicators?
Technical indicators are tools that apply mathematical formulae to analyze various aspects of forex trade. They analyze a currency pair trade in terms of open and close price, high and low price, and volume traded.
The results of the mathematical formula are then plotted on a chart on your trading platform. You can now make your trading decision based on what you see on the chart.
Technical indicators are useful tools in forex trading. However, they should not be used on their own. They should be coupled with a good trading strategy and proper fundamental analysis. This will enable you as a trader to make a good trading decision.
Types Of Technical Indicators
Trend indicators show you the direction in which the market is moving. . They are also known as oscillators. They indicate a bearish or a bullish market. Trend indicators help you to know whether to take a buy or sell position on your trade.
These are indicators that measure the strength of the price. How long is the price of the currency pair you want trade likely to change? They explore price levels to help you make your buy or sell decision.
Momentum indicators show when prices are high or low and are likely to change.
Volatility indicators compare past to present market prices. They show how high or low prices of a currency pair you want to buy have ever gone within a given timeframe. The timeframe could be a few hours, months, or years.
These are indicators from your broker showing you how the market looks. Volume indicators cannot be fully relied on as they can’t show the full market. Without a centralized market place, you can only get data collated by your agent.
Top 4 Technical Indicators Used By Forex Traders
A moving average as a technical indicator falls under the category of trend indicators. It indicates the general direction in which the price of the currency pair you intend to invest in. It gives you results on price movements over a given period.
Relative Strength Index (RSI)
The Relative Strength Index falls under the momentum indicators category. It helps traders to gauge the momentum of prices in the market. It also presents an overview of market conditions and any out-of-the-ordinary price variations.
It presents traders with a position on which to expect a price correction. When the price is too high, you can sell in anticipation of a negative correction. A low price expects a positive price correction.
This is another indicator that helps to identify the trends in the forex market. It indicates the extent to which the market will deviate from its current trend. On your trading platform, this indicator provides you with levels of support and resistance. These could indicate an upward or downward trend in the market movement.
With this information, you can make the right trading decision.
Bollinger Bands are volume technical indicators. They indicate a range within which the price of a currency pair trades. Market volatility changes are represented by changes in the size of the band. A narrow band represents low market volatility. A wider band, high market volatility.
High prices represent an overbought asset whose price is likely to fall. While prices below the band represent an oversold currency pair.
These are the top four commonly used technical indicators. There are many others used every day all over the world by forex traders. Technical indicators are useful but, a good trader doesn’t rely solely on indicators. Technical indicators are tools that help in decision making.
Besides their trading strategy, traders need all the additional help they can get to make good profits in their trades.