Best Forex Indicators

Forex indicators signal price trends. They are also called technical indicators, and ideally, a trader can rely on them to show the direction of the market and the best points of trade entry. There are many different indicators in use. In fact, the large number and variety of indicators in use makes it easy for a trader to start using so many indicators that the information provided starts to require management in and of itself. Indicators may appear to conflict, making their use all the more complex and confusing. The suggestion is that a trader confines use of indicators to just a few that are well known and that have been proven effective. A trader might restrict use of indicators to two or three well known indicators.

Two fundamental and proven indicators for Forex trading are moving averages (MA) and stochastics. These are usable even by novice traders, but for more advanced traders, they still offer highly sophisticated data that can help in the formation of complex trades.

Moving averages include the simple moving average (SMA), exponential moving average (EMA), and weighted moving average (WMA). A moving average provides a smooth depiction of price movement over a given period of time.

The moving average is a trend indicator. Trend following is a proven technique for Forex trading that allows precise trade entry and exit at optimum price points. The moving average helps define the trend by showing trend or price direction, price momentum, and support and resistance levels. Direction is either clearly upward or downward, or it is lateral, with no definite movement up or down. Momentum is the strength of the trend, shown by the angle of the MA. An upward slope shows strength in an uptrend or a reversal from a downtrend, a downward slope shows strength in a downtrend or reversal from an uptrend, and no slope or a flat MA shows weakness in the trend and the possibility of reversal. Points of support and reversal are simply entry points for trades after completion of a retracement. The SMA is an unweighted MA showing only movement during a given period with no weighting for age of data. The EMA is weighted to more recent data, and is believed to respond more quickly to price changes, allowing faster trade entry in the event of a shift. The WMA is an average of closing prices over a period of time. It is also weighted to more recent data. The most common types of MAs used in Forex are the 200 day SMA and 200 day EMA, the 100 day SMA, the 50 day SMA, the 34 day SMA, the 20 day SMA and 20 day EMA, and the 10 day SMA and EMA. There are other types of MAs sometimes used, including the double and triple EMA, but these three are the most commonly used and the easiest to use, and the data provided is still reliable and potentially sophisticated. They are usable by novices and skilled traders alike.

The stochastic indicator or stochastic is based on the theory that rising price most often closes at or near previous highs, and falling price closes at or near previous lows.

Most trading platforms will calculate and display stochastic. Stochastic is based on trigger levels, consisting of two lines, the %K fast line, and %D slow line. The stochastic lines are similar to MAs, and trades are signaled when the lines cross over one another. When %K, the fast line, crosses %D, the slow line, in a downward direction, sell orders are called for. When %K crosses %D in an upward direction, buy orders are called for. This is a great oversimplification of stochastic buy-sell signaling, but it is correct as a starting point. Two more complicated forms of analysis with Stochastic include finding and trading overbought/oversold conditions and trading the divergence between stochastic levels and price. Despite their complexities, stochastic have been proven to be reliable and accurate, and Forex traders are advised to study and master the principles for use in their own trading.

Reliable indicators are highly valuable in Forex trading. Understanding and mastering them requires study and practice. The value in indicators outweighs any difficulty in learning them, and traders are encouraged to devote time to their study and mastery. There are many books and printed resources available, and there are websites that provide information and tutorials. For more information on the best forex indicators be sure to visit Lucror FX today!

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