If you have just acquired knowledge on technical analysis, you might find all the indicator your predictions are based on a bit much for you to handle. You can earn money from foreign exchange using different type of indicators and system. The reason most traders don’t succeed is because they do not learn how to use one indicator and system effectively before jumping to another one. It is not be possible for you to use all the indicators and still make a choice on time; therefore we made a list of 5 best technical indicators used by Forex trading experts.
Moving averages are just a means to smooth the market price so it would be easy for you to see the market trends. If you are new into the Forex trade then it is best you start with the simplest indicator. The sole aim of moving averages is to find out the mean exchange rate or price of currency pair within a particular time. The types of moving average that are used by many are the simple moving average (SMA) and the exponential moving average (EMA).
Moving Average Convergence Divergence (MACD)
MACD is an indicator used to detect any major change in the market trend, indicates direction of trend and gives a clue if there is any possibility of market reversal. It is among the strongest signal generated by technical indicators to detect price change on a daily basis. It is called trending indicator, it indicates the up or down trend of a stock. Before investing in any market it is best you evaluate the tract of the long-term trend first.
Relative Strength Index (RSI)
RSI enables you to know the strength of the upward movement against the strength of the downward movement within a particular time. The RSI makes a comparison between the upward and downward movement of price within a particular time, and shows the result in form of lines moving between 0 and 100. It is used to determine the demand rate of a particular currency.
The Bollinger bands is a moving average based tool that a Forex trader can use to determine the fluctuation and trend in the Forex market. This technical indicator functions on the assumption that there is always a constant change of market price which depends on two standard deviations. Each of the standard deviations is plotted on both side of a moving average graph of the prices. Therefore Bollinger bands are majorly used to determine whether a price is low or high based on the price history.
Average Directional Index (ADX)
One of the best ways to evaluate the strength of the current market trend is by using Average Direct Index (ADX). Measured on a scale of 0 and 100, its very rear to get a reading of 60, a reading below 20 indicates a weak trend while a reading above 40 marks a strong trend. It is very necessary to know if the market is trending or trading (moving sideways).
If you dig deeper you might be able to get other helpful indicators. A technical indicator can help you earn money but most traders misunderstand or overemphasize them and it ends up not profiting them. Forex technical indicators cannot fix all your problems they are just part of your trading strategy. You should not put trust in any indicator you don’t know how it functions.