Introduction
Forex is a dynamic global currency market that provides traders with many opportunities to make money. However, to become successful in Forex requires the ability to analyze and predict price movements. This is where Forex indicators come to the rescue, which are available in the terminals of brokers, for example, Pocket Option – https://revieweek.com/review/pocketoption/.
What are Forex Indicators?
Forex indicators are mathematical tools that analyze market statistics – such as prices and volumes – to predict future market movements. Indicators are visual or numerical results of these calculations that help traders make buy or sell decisions.
List of Top Forex Indicators
- Moving Averages, MA
Moving averages display the average price of a currency pair for a certain period of time, smoothing out the “noise” of random price fluctuations. They are often used to determine trends: if the price is above the moving average, the trend is considered to be upward, and if it is below it is considered to be downward.
Strategies with Moving Averages
- Moving Averages Crossing Strategy. Buying or selling is performed when two moving averages cross.
- Golden Cross Strategy. When a short-term moving average crosses a long-term moving average upwards.
- Death Cross strategy. The opposite of the “Golden Cross” when the short-term moving average crosses the long-term moving average downward.
- Relative Strength Index, RSI
RSI is an oscillator indicator that measures the speed and change in price movements, helping to determine when an instrument is overbought or oversold. Strategies based on RSI often involve buying when the RSI falls below the 30 level (indicating that the instrument is oversold) and selling when the RSI exceeds 70 (indicating that the instrument is overbought).
Strategies with RSI
- Overbought/Oversold Strategy. Buy when the RSI falls below 30 and sell when the RSI exceeds 70.
- Divergence strategy. Search for divergence between price movement and RSI as a signal of a possible reversal.
- Standard Deviation
Standard deviation is a measure of volatility that shows how much a price deviates from its average. It is useful for identifying unusually high or low prices that may precede a reversion to the mean. One way to use this indicator is with the Bollinger Bounce strategy, which uses Bollinger Bands (based on standard deviation) to identify support and resistance levels.
Strategies with Standard Deviation
- Bollinger Bounce. Uses Bollinger Bands to determine support and resistance levels and assumes that the price will “bounce” from these levels.
- Bollinger Squeeze. Looks for periods of low volatility (or “squeeze” bands) as a sign of a possible volatility spike.
Moving Average Convergence Divergence, MACD
MACD is a trend indicator that shows the interaction of two moving average prices. When MACD crosses its signal line, it can be a buy or sell signal. MACD can also help to identify divergences: when the price moves in one direction and the MACD moves in the other direction, it can herald a reversal of the trend.
Strategies with MACD
- MACD Crossover. Buy or sell when the MACD crosses its signal line.
- MACD Divergence. Search for divergence between price movement and MACD as a signal of a possible reversal.
Bollinger Bands (BB)
Bollinger Bands consist of three lines: a moving average and two standard deviations of that average, creating an “upper” and “lower” band. This helps to determine when an instrument is overbought or oversold and can be used to determine support and resistance levels. One strategy that utilizes Bollinger Bands is the Bollinger Squeeze, which looks for a “squeeze” in the bands as a sign of a possible spike in volatility.
Strategies with Bollinger Bands
- Bollinger Bounce. Uses the principle of a “bounce” from the upper or lower Bollinger Bands, which can serve as a signal to enter the market.
- Bollinger Squeeze. Involves looking for a “squeeze” of the Bollinger Bands as an indicator of low volatility, which can precede a volatility spike and significant price movement.
How to Start Working with Indicators for a Beginner: Brief Tips
- Explore the indicators in your broker’s terminal
- Do not depend on one indicator
- Practice and testing
- Develop a strategy
- Constantly study new strategies.
