What are forex indicators?
Forex indicators are overlays that you can add to charts – they represent mathematical calculations that can help you identify market signals and trends. While indicators can be helpful to use as part of your technical analysis, it’s just one of the ways of strengthening your trading plan and decision-making.
Let’s look at some of the most popular indicators used in forex trading.
1. Moving average
The moving average (MA) – also known as ‘simple moving average’ or ‘SMA’ – determines in which direction the current price trend is moving in. It can also be used to identify the strength of a trend and any possible imminent reversals via support and resistance levels. You can add short-term, mid-term, and long-term MAs to charts.
2. Relative strength index
A relative strength index (RSI) shows the direction in which a market is likely to move. While RSI can be represented as any figure from 0 to 100, support and resistance levels are set at 30 and 70. An asset with an RSI of around 30 is considered as oversold (signifying a possible upcoming rally), while one that’s around 70 is considered as overbought (signalling a possible downward trend).
3. Slow stochastic
Like the RSI, slow stochastics are an oscillator that can help you find oversold or overbought environments through tracking momentum and trend strength. Probable reversals in price are marked by the scale reading (also 0 to 100). A figure below 20 is often seen as representing an oversold market, while 80 and above is considered as an overbought market.
4. Moving average convergence divergence
Moving average convergence divergence (MACD) compares two moving averages to detect fluctuations in momentum. Traders often use this indicator to spot support and resistance levels that might signal potentially beneficial buy and sell opportunities. Convergence means that the moving averages are moving towards one another, and momentum is decreasing; while divergence means that they’re moving away from each other, and momentum is increasing.
