- August 2014
- Posted By Ninoslav
- 0 Comments
Forex traders who have already used – or are about to use – technical analysis probably already know about forex indicators. If you’re going to participate in forex trading, such tools are necessary to learn how to follow essential market movements and the like.
About the forex indicator
The forex indicator, in particular, are heavily used in forex technical analysis. They’re tools that are mainly used to predict future movements of prices or the direction of those same price movements, particularly through reading past data. Most forex traders ultimately use forex indicators to analyze price movements that react on a short term basis.
When used on a long term basis, the forex indicator mainly helps them find the best exit points and the best entry points. Of course, there are a wide selection of forex indicators to use, that being the likes of Relative Strength Index, MACD and Stochastic. In this short article, we’re going to take a look at three of the best forex indicators used today.
The best forex indicators of today
Used for: Keeping track of market trends.
Moving averages, in their simplest form, are used to find the average value of any price during certain periods of time. They essentially help traders find the direction of certain trends, subsequently helping them find a ‘better’ price to avoid misleading data. Moving averages, as forex indicators, are best used in combination with one another, as two can be combined to produce more accurate results about market trends.
Moving Average Convergence-Divergence (MACD)
Used for: Determining the strength of trends and/or the presence of new trends.
The aforementioned MACD indicator is commonly used as a confirmation indicator, as experts ‘indicate’ its at its strongest in that context. It can also be combined with other forex indicators to increase the amount of potential it harbors.
A MACD typically has three parameters divided into 12 (presents 12 bars of the fastest moving average), 26 (presents the last 26 bars of the moving average) and 9 (presents the difference between the previous moving averages).
To keep the explanation simple, the MACD is mainly used to track bearish or bullish crossovers with the indicated moving averages, which might end up confirming a trend.
Relative Strength Index (RSI)
Used For: Tracking overbought and/or oversold measurements in the market.
The Relative Strength Index indicator is known to work similarly to Stochastic indicator. This indicator is a price-tracking oscillator with a range of 1 to 100. The three main zones on an RSI (upper, lower and middle) help spot potential ‘tops’ and ‘bottoms’ in the market that correlate with overbought or oversold positions. Naturally, RSIs can also be used to determine market trends.