Forex indicators are essential trading tools that most of the technical and fundamental analysts use. If you are a forex trader or you want to start trading, you should know about forex indicators, as there is no alternative to knowing indicators in Forex trading.
What are Forex Indicators?
In technical analysis, traders use the past movement of a price to predict the future move. However, the forex market is complicated as many factors affect the price of a currency pair. Therefore, traders use several calculations of previous price movement that helps to increase the probability of future price development. Technical indicators are the tools that use the last change of the price and helps the trader to predict the next movement.
Every technical indicator has a unique calculating method, which is different from others. When two or more technical indicators predict the same direction, traders become confident about the future price movement.
Forex indicators save time to calculate the previous price measurement manually. However, fundamental traders also use these tools to identify the possible entry point of a trade.
How to Predict Price Using Indicators?
Technical indicators use the MQL4 programming language that is suitable for new, advanced, and professional traders. There are many built-in indicators in the mt4 platform, which is essential for traders. On the other hand, traders can build their own forex indicators using the MQL4 language.
However, forex indicators do not say to buy or sell directly but it indicates what buyers and sellers might do with the price.
For example, if you are trading in the daily timeframe of EURUSD and the price is currently above the 200-day moving average, it means buyers are holding the price towards their direction from the last 200 trading days. Therefore, the price may continue higher based on this calculation.
Top Forex Indicators
There are 30 built-in trading indicators in the mt4 trading platform. Among these, let us have a look at top forex indicators:
Moving average indicates the average price of the last selected number of candlesticks. For example, 50 days moving average indicates the average price of the previous 50 days’ candles.
There are many types of moving averages in forex trading where the simple moving average (SMA) and the exponential moving average (EMA) are famous.
The simple moving average is calculated by averaging the highest and lowest of the price while the EMA focuses on the most recent prices. Therefore, the SMA works well in higher timeframes with higher value, and EMA works well in predicting the most recent price movement.
Relative Strength Index (RSI)
The RSI is a very straightforward indicator that helps to identify the potential oversold and overbought zone.
If you are trading based on buying from low and selling from high, this indicator will help you to identify the potential entry point. Furthermore, it helps to identify the possible exit point as the price may reverse from overbought and oversold zones.
MACD or the moving average convergence/divergence indicates the potential point from where the price may seek for rest.
Furthermore, the divergence between the price and MACD indicates the possible price reversal, which also shows the overbought or oversold zone.
Traders often use MACD and RSI besides other trading indicators to avoid the unwanted market movement.
The Bollinger Bands measures the volatility of currency pairs. If the volatility increases, the Bands start to expand while in corrective structure, the bands begin to squeeze.
Traders can use Bollinger bands as support or resistance from where the price reverses. On the other hand, when the price breaks out from the Bollinger bands, it may move actively in any direction.
There are other indicators in the forex market, and like the indicators mentioned above, these have unique characteristics. Therefore, traders have to understand every indicator and do enough practice to get benefits from these.