These are the 6 best indicators you need to know

Every Forex trader knows that you need to supplement the information in your charts with a number of technical indicators. Commonly used indicators include strength indicators, volatility indicators, trend indicators and cycle indicators. These indicators not only help us determine where the market is moving, but also when the trend is about to end and we must either exit the trade or, with a good signal, reverse the trade.

The following 6 indicators are the most commonly used among Forex traders:

  • Stochastic Oscillator – The Stochastic Oscillator helps the trader determine the strength or weakness of a currency by comparing the closing price with a price range over a period of time. When the trader identifies a high stochastic, the said currency can be repurchased and you have to go to a short position or to a sword. Conversely, a low stochastic indicates that a currency may have been resold and you need to go up or long.
  • Bollinger Bands – Bollinger Bands contain most of the value of the currency between the bands it shows. Each bar has three rows – the bottom and top lines show the movement of the price, and the middle line shows the average price of the currency. When the market experiences high volatility, the gap between the lower and upper bands will increase. In your candlestick or ribbon chart, the currency is considered overbought if the bar / candlestick touches the top bar and oversold if the bar / candlestick touches the bottom bar.
  • Medium Directional Movement (ADX) – ADX is used to determine whether a currency is entering a new uptrend or downtrend. ADX is also used to determine how strong the trend is.
  • Relative Strength Indicator (RSI) – RSI uses a scale from 0 to 100 to indicate the highest and lowest prices for a given period of time. When the prices of a currency rise above 70, it is assumed that the currency is overbought. On the other hand, a price below 30 would most likely mean that a currency has been resold.
  • Simple Moving Average (SMA) – SMA is the average currency price for a given period of time compared to other prices during the same periods of time. To illustrate how the SMA works, closing prices for a period of 7 days will have an SMA equal to the addition of the previous 7 closing prices in a currency divided by 7.
  • Moving Average Convergence / Divergence (MACD) – MACD is another oscillator that shows the momentum of a currency, as it refers to the two moving averages. As discussed in previous articles, when MACD lines intersect, this intersection may indicate the beginning of an upward or downward trend.