Top 5 Forex Indicators
There are many forex indicators today; some are simple to use while others are complicated. The simple ones are ideal for these forex starters while the complicated ones are best for the skilled trades. There is, however, no specific forex indicator which can fit all the trading styles, and that’s why it’s important to work with a forex indicator which suits both your style and psychology.
Below an overview of the of the best five forex indicators that you should consider:
Simple moving average(SMA)
This indicator shows the average price for a certain period. Its graph line is used to smooth the price volatility and also to get rid of the unwanted “noise” for the prices. This allows the traders to only focus on the major trends and not the corrections. SMA just outlines the present price and therefore does not predict h fire possible prices.
Most traders use the simple moving average because it finds the trend reversals, identifies the current direction of the trend and shows the resistance and support levels. Its only drawback is that it tends to lag behind the recent prices.
Exponential moving average(EMA)
This is similar to the simple moving average except that it focuses on recent prices. EMA, therefore, shows a quicker response to the price changes and compared to the SMA. The best time to trade when using this indicator is when then two graph lines cross each other. You can purchase when the shorter line passes above, the slower MA, and sell if the shorter MA passes above the MA. The main advantage of this indicator is that it’s accurate and shows the recent prices that the investors need.
Bollinger bands indicators are used to measure market volatility. The indicator is made up of thee lines, where each line is known as the band. The middle band is used to determine the direction of the trend, while both the upper and the lower bands show the volatility. The two bands widen automatically when the volatility becomes high and reduces when the volatility goes down. Bollinger bands work best only when nothing is trending in the market, and are therefore high for the trading site when used alongside others.
The main advantage of this indicator is that it’s great in the sideways market- when the pairs are trading in a wide range. Its main drawback is that the current prices can stay at one Bollinger band for an extended period if there is a string trend.
Moving average convergence divergence (MACD)
This measures the forces driving behind the market. It, therefore, indicates when the forex market no longer moves in a certain direction and needs to be corrected. Although the indicator is based on the moving averages, it sometimes other complicated formulas. Shown using MACD, you should sell when the bars start to decline and buy when the bars start to increase after a decline. Its main advantages are that it can be used in both the ranging and trending market. Its main drawback, however, is that to can sometimes lag behind the price chart.
This forex indicator is based on the idea that the market will increase the retracement after having an extreme move. The portions are given by a Fibonacci sequence which begins with these letters: 0, 1, 1, 2, 3, 8, 13, 24, and 55…When using this indicator, subsequent levels of resistance and support occur near the ratios. This indicator is mainly used by the experienced forex traders who are familiar with the market. It gives an element of a fulfilling prophecy.
Understanding how the top forex indicators work will help you to make the right decision when choosing one. If you have an online trading account, work with the one you are conversant with. The existence of these indicators shows that the forex market should not be taken for a random walk since the economic theories contend.