Forex indicators are technical tools that are embedded on trading platforms and connected through diverse services to offer traders a more concise view of the market, delivering short or long-term market forecast for a currency, a summary of the currency’s present state, or a flashback at historical data. There are several types of forex indicators that give the impression of interactive charts, often updated along with price action.
The forex market has shown repeatable patterns under certain circumstances. Such patterns are usually not random – meaning that certain price actions will resurface over and over again. The best indicator will identify such patterns as they emerge.
What Indicators are Best?
Many traders have technical indicators that become a standard part of their trading strategy. Some Forex indicators will obviously make name for themselves as “world’s best Forex indicator,’ but the fact still holds that the trader’s psychology and personal trading style will shape his decision into endorsing an indicator as being world best Forex indicator.
There are absolutely many indicators that are competing for the title of becoming the world best, but understanding an indicator of this magnitude should be as simple as they’re being added unto charts. The indicators every trader must know are herein listed:
As a technical indicator worthy of note, the moving average is designed to spot break in price actions in the direction of the overall trend. The moving average is a line drawn on the chart that gauges the mean price of a Forex pair over a given period (i.e. the last 14 days or 200 days), to get a grip of the general trend. Moving averages with shorter time periods have lessened smoothing and react faster to price changes in the market, for instance, the 14-day moving average will react faster to changes in the market than the 200-day moving average.
Stochastics are oscillators that are designed to determine overbought and oversold zones in the market and possibly price reversals. The indicator uses the %K and %D line to generate its signals.
Relative Strength Index
The Relative Strength Index, or RSI, is also an oscillator just like the Stochastics. It is used to find overbought and oversold conditions in the market. This might just be that indicator for traders who love to ‘buy low and sell high.’ Its values are plotted between 0 and 100, with values of 100 tagged overbought and those of 0 are considered oversold.
The Bollinger Band should be on any list of best Forex indicators considering that it is a volatility channel. The general idea is simple. If the price goes past a moving average plus an added amount, it means a trend is about to start. Its most used values are 2 or 2.5 standard deviations.