Top 10 Forex Indicators

Traders from all over the world, experts and naive, join the forex market each day. Therefore, to surpass the competition of the extensive currency market and make huge profits can be a bit challenging. How the investors and traders lookout for trading in the forex market is by applying technical analysis to their trades. Technical analysis refers to analysing current and historical prices to predict the course of a trade and how the market will react in future. The tools used for technical analysis are called technical indicators or indicators. One benefit of using forex indicators is the elasticity and liberty they tend to provide to the investors and traders.

The forex indicators can be applied individually or as a part of the trading strategy.
There are a lot of indicators that can be used in forex trading to predict price movements. One must know the essential characteristics and structure of most popular indicators and how to use them during forex trading. Here, we will list down top forex indicators that prove to be the best for application in the forex market.

Top 10 Forex Indicators

RSI – Relative Strength Index Forex Indicators

Relative strength index is a momentum forex indicator that is used by traders and investors to measure the strength of a trend or price movement.
J. Welles Wilder Junior developed RSI in the latter half of the 1970s. In recent times, this technical indicator has become of vital use for traders in the forex market.

To calculate the relative strength index, one has to go through a process that includes multiple steps. This is done to find out average losses or gains.
Average loss: Average loss accounts for negative impact on prices. It is calculated by adding all the periodic prices (total loss) and then dividing it by the period chosen. The unit obtained would be in negative terms.

Average gain: Average gain is the positive impact on the prices. It is obtained by adding all periodic prices (total gain) and then dividing the number obtained by the period chosen. The result would be in favourable terms.
RS- relative strength: To calculate the relative strength of a price movement, one has to divide average gain by average loss.

Now to calculate the RSI, the formula is
RSI = 100 – {100-(1+RS)}

The primary purpose of calculating RSI is to predict if the market is oversold or overbought and if the market conditions can change in current times.

Moving Averages Forex Indicators

Every trader trading in the forex market should know the concept of moving averages. Moving averages refer to the average price of candles that remain, to represent the overall price. Moving averages use the historical prices to determine the movement of prices and fluctuations in them.

When the price surpasses moving average, it is an indication that buyers are in control of the price. It means your trade should focus on buying rather than selling. On the other hand, when the price passes below the moving average, it is an indication that sellers are controlling the price. This action, for a fact, means that you should focus on selling rather than buying.

MACD – Moving Average Convergence Divergence

This technical indicator shows the connection between a pair of moving averages. The moving average convergence divergence indicator is based on the exponential moving average (EMA). EMA focuses on recent price changes rather than historical prices.
It is calculated as; MACD = 12 period EMA – 26 period EMA.

The outcome of this calculation is a MACD line. This line is also referred to as a “line of signal”, as it indicates whether one should buy or sell. When the MACD surpassed the signal line, traders ought to buy. And when MACD passes below the line of signal, traders should sell.

Bollinger Bands

The creator of Bollinger bands is John Bollinger. This technical indicator is primarily based on moving averages. There are two divergences in the upward and downward line, and one moving average stands in the middle.

The onward and downward lines in Bollinger bands signify support and resistance levels. A breakpoint from these lines indicates profitable trade.
This technical indicator is one of the most straightforward indicators to use. It is used to measure the volatility of a particular currency in the market. The wider the distance between the upward and downward bands, the higher the volatility. The tighter and more closer the bands are to each other, volatility becomes lesser.

Fibonacci Retracement

Fibonacci retracement is a technical indicator based on pivotal numbers that were identified in the 13th century by Leonardo Fibonacci. These numbers are expressed as ratios in series. The most crucial part of Fibonacci retracement is the golden ratio – 1.618. This ratio is commonly used by investors and traders to measure the reversal in the market and profit-making area.

This technical indicator identifies support and resistance levels and helps in setting prices. Major Fibonacci levels include 23.6%, 38.2%, 50%, 61.8%, and 100%.

Stochastic Forex Indicators

Stochastic is designed to analyse whether a currency in the forex market is oversold or overbought. For analysis, this technical indicator compares the closing price to the price range of the particular chosen time period. The values are displayed in a range of 1 to 100 levels. Here, the 0 indicates an oversold circumstance, whereas a 100 would indicate the overbought condition. When the price moves downward than 30, it is an indication of a bullish trend. On the opposite, when price movements are above 70, it means that a bearish trend ought to follow.

ATR – Average True Range

Average true range technical indicator predicts the volatility of a particular pair of currency in the market. Looking for volatile currencies and otherwise is vital in forex trading.

A low average true range will signify low volatility which means the market will continue the way it is moving. On the contrary, a high average true range will forecast higher volatility, which in turn means a reversal in market trends.

The core part of ATR is the range which depicts the space between high and low of a currency pair. Rane is calculated by subtracting the low of a particular period from the high.

Rage, as a calculation, can be used in whichever period of time the trader wants. True range or TR, on the other hand, is used to increase accuracy. TR measures current high to current low, previous close to the recent low and recent high.

After the calculation of TR, a trader can go on to calculate ATR. Estimation of average true value involves complex mathematical formulations. But a trading platform or online broker can do it for investors and traders.

If you are looking for an online broker to facilitate forex trading by using various indicators like ATR, we would like to recommend TradeATF. TradeATF is an authentic regulated broker that functions in Argentina, Bolivia, Chile, Costa Rica, Dominican Republic, Ecuador, Guatemala, Mexico, Panama, Peru, and El Salvador. The broker deals in various securities and instruments like commodities, indices, stocks, bonds, forex, and more.

Donchian Channel

Donchian channel is a technical indicator created and developed by Richard Donchian. Its formation takes place by taking into consideration the lowest low and highest high of the chosen period. The space between the lowest low and highest high is the channel for the period.
Donchian channel indicated how volatile the market conditions are.

When the price is constant or relatively constant, the donchian channel will be narrow. The more the prices fluctuate, the wider the channel will be, indicating high volatility.

The core element of this technical indicator is the period. Once the period is chosen, the donchian channel can be easily calculated manually. However, this indicator has widespread usability among forex traders and is provided by most of the online trading platforms and brokers.

Pivot point

Pivot point technical indicator depicts the equilibrium range of demand and supply of a particular currency pair. When the price of a currency pair is at the pivot point, it means the demand and supply of that currency pair are equal.

The movement of price surpassing the pivot point means that the demand for the currency pair is high. But when the price goes below the equilibrium or pivot point, it means that the supply of the particular currency pair is greater than demand.

In the forex market, at starting, the price tends to be at equilibrium before forming any trend.

The pivot point is one of the simplest indicators to determine support and resistance level and entry points in a forex trade. This indicator is generally used in combination or rotation with other indicators.

Parabolic SAR

This technical indicator is used to predict the rend or direction of a currency pair in the forex market. When the price moves upwards of a parabolic SAR indicator, it means the trend is bullish. But when the price moves downwards of the parabolic SAR indicator, the trend is bearish.
The indicator attempts to predict whether a currency pair is oversold or overbought in the market.

Customised Forex Indicators

The advancements in technology and trading in the forex market in contemporary times give traders flexibility customise the market according to their requirements and necessities. One can now build and design his or her technical indicator to best suit the financial goals one ought to achieve through forex trading.
Customised indicators can be wisely crafted by traders with their most specific requirements.

Conclusion

The above mentioned technical indicators are the most widely used technical indicators and can account for exemplary performance if implemented in the right way.
However, how effective an indicator can turn out depends on the way it is included and used in the forex trade.
Traders often take into account a combination of these indicators, each indicator fulfilling a particular prediction.
The most useful and easy-grip technical indicators are those that are flexible and can adapt to strategies employed by the trader or investor.

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