Forex indicators are widely used by technical trading analysts to help them decipher price charts for finding accurate buy and sell signals. Every Forex indicator has its own unique mathematical and visual properties. While there are hundreds, even thousands of technical Forex indicators out there, there’s really only a handful that are worth knowing and applying to your own trading strategy.
Forex Moving Averages
Moving averages are used as a reliable way to wait for trading opportunities that align with the overall trend. Moving averages are basically linear lines that calculate the average price of a currency pair over a period of time. Typically, when the trend is bullish, price bars will be above the moving average line, and when price is bearish, price bars will move below the moving average.
There are three types of moving averages, they include: Simple Moving Average (SMA), Exponential Moving Average (EMA), and Weight Moving Average (WMA). One or multiple moving averages can be used on any single price chart.
The Relative Strength Index, or RSI, is under the ‘oscillator’ category of technical indicators. Oscillators, more specifically the RSI, help traders find currency pairs that are considered overbought or oversold, and it’s an excellent tool to use for finding turning points in the market. The RSI can be used in trending and ranging markets. So how does the RSI work?
Below the main price chart, the RSI box gives us a plotted value from 0 to 100 with horizontal lines running across the 70 and 30 level. When price passes the 70 level, the asset is considered to be overbought, and likewise, when the RSI falls below the 30 mark the currency pair is oversold. Apart from this, the RSI is also an excellent tool to use to find price divergence. Divergence is essentially visual discrepancies between the price chart and the oscillating indicator.
Using the MACD
The Moving Average Convergence and Divergence (MACD) indicator helps traders find market entry points that align with the overall trend. The MACD is an extremely popular oscillator that can be used in trending and range-bound markets. The MACD relies on a combination of two moving averages and a histogram known as the zero line.
To find accurate MACD signals, first take note of the direction of the lines in relation to the zero line, which gives us our directional bias. Now you need to wait for a crossover or cross under of the two lines for a valid trading signal. But again, MACD signals are best used in trending markets in the direction of the primary trend.