If you have any experience in using any kind of charting packages to assist you with your forex trading, you will know that there are endless different technical indicators you can use. Success in the world of forex is often a combination of several things.
Many years ago, forex trading was mostly for the big players. Today, with technological advancements, it is possible to have retail investor accounts.
Most publications estimate that up to 90% of new entrants do not succeed.
FOREX indicators are tools that technical analysts use to forecast price movements by analyzing historic trends in the currency market. This is the extent of most people’s knowledge of the subject. Using this as our square 1, I will take you a couple of steps forward and embolden you to use these financial indicators in your next trade.
There are several technical indicators you can use. More indicators ultimately cause more perplexity around which ones you should use for your trades. So, that is the issue we will address first.
If you are starting out, experiment with just one indicator. In fact, if you're completely new, you can look at signals from professional traders and rely on their technical knowledge instead!
Here are the different type of forex indicators list:
1. Trend indicators.
MACD, Parabolic SAR and the various moving averages are a few examples of trend indicators and they can all be used to identify a trend. It's widely argued that you should only trade with the trend so all of these indicators will help you to take the decision out of your hands, and therefore dictate which way you should be trading. Your only decision now is at what level to enter the trade.
A leading indicator uses past price data to forecast future movement in prices in the market. Traders can get an early warning and understand the direction of the trade before a new trend starts.
3. Relative Strength Index (RSI)
Another very commonly used indicator is the Relative Strength Index. Unlike moving averages, the name does not immediately convey what this metric tells us.
The RSI was the birthchild of J. Welles Wilder Jr. who coined the indicator in his book “New Concepts in Technical Trading System.” While the formula to compute RSI is pretty straightforward, you may want to refer to the in-depth explanation in the book if it spikes your curiosity.
4. Momentum Indicators
The price of a particular currency pair will often trend upwards or downwards for long periods of time, but it’s often useful to know the strength of a particular trend, which is why momentum indicators are very helpful.
5. Volume Indicators
Volume indicators are most commonly used by stock traders because it can be hard to find volume data for individual currency pairs. In addition to the actual volume indicator, there are other volume-based indicators that you can use, such as the Chaikin Money Flow and On Balance Volume indicators, but these aren’t generally shown when looking at forex pairs because the volume data isn’t available.