For many newcomers to Forex trading, the types of trading and the so-called Forex indicators are literally nothing more than Bohemian villages at the beginning. However, this should not be seen as a deterrent, but rather as an incentive to take a closer look at the explanation of the forex indicators and one or the other strategy. The result is usually that the models are much more understandable than one might have imagined at first glance.
WHAT IS A FOREX INDICATOR ANYWAY?
Before traders get to grips with forex indicators, it is important to understand what the term actually means. The developer of MetaTrader 4 has given a quite precise definition, which should be quoted briefly:
“In the context of technical analysis in MT4, an indicator is a mathematical calculation based on price and/or volume. This means that the indicator takes the information of a certain time unit (high, low, opening, closing and tick volume) and displays it graphically in a new way. The results generate signals that are used to predict future price movements.”
Forex indicators are therefore the basis of trading. They provide tangible information that is not based on gut feeling, but on numbers.
Basically, the indicators can be divided into two groups. Leading indicators try to identify trends early on. Traders should be able to achieve the highest possible profits from this information, as large price jumps are possible. However, leading indicators are relatively often afflicted with unavoidable mistakes. Tracking indicators, on the other hand, are less affected by false signals. They are merely intended to confirm existing trends.
An indicator that can combine both advantages does not exist. Traders must always decide individually which Forex indicators to use. It should always be noted that a single indicator is not meaningful. The indicators must always be combined in a meaningful way so that long-term success can be achieved.
INTERPRET AVERAGES CORRECTLY AND GET STARTED ON TIME
StrategyForex indicators are also known under the term “Forex trading signals”. One of the most striking models in the context of a strategy for the best forex indicators is the moving average approach. This, in turn, is also called “Moving Average Crossover” in technical jargon.
They are one of the most important approaches in the explanation of Forex explanations and one of the classic approaches with the aim of a meaningful trend analysis. In a combination of shorter and longer time frames, an average value can be determined by the approximation of price lines in order to find trend reversals upwards or downwards.
IDENTIFYING OPPOSING TRENDS WHEN THEY OCCUR
In conjunction with the counter-trend strategy as well as the trend following strategy, good statements can be made as to when the right moment has come for an investment in currency pairs. However, such approaches require a little experience to invest without excessive risk, especially with counter-trends. Many brokers provide analysis tools parallel to the trading types and tips on one or the other strategy for forex indicators, so that traders are not completely on their own.
OPPORTUNITY TO INFLUENCE COURSE MARGINS THROUGH STOPS
Forex indicators are also recognizable resistances (Resistance) or supports (Support), which on the one hand provide information about when trends are impending or ending. By means of stop functions, many brokers allow their traders to set certain price limits. This allows for a fairly accurate alignment of forex trades to minimize the risk of loss.
SO THEY DETERMINE WHEN TOO MUCH OR TOO LITTLE IS BEING SOLD
Market OutlookAmong the elementary forex indicators, oscillators are also important in identifying very clear and far-reaching trends at the end of a sustained sideways phase.
The Relative Strength Index and Stochastics are two models in particular that are basically fixed in the chart tools of most brokers and indicate when oversold and overbought areas have been reached.
In addition, traders learn which price values are perfect for investing in the Forex sector in the coveted Forex pair.
THE MOST POPULAR FOREX INDICATORS AT A GLANCE
Traders can access hundreds of forex indicators. In practice, a total of 9 indicators have proven to be particularly advantageous and meaningful. Some of them have already been briefly presented in this article, but will be explained in more detail below due to their relevance.
In the 19080s, the well-known trader John Bollinger developed his own system for analysing price movements. This assumes that a price fluctuates continuously between a low and a higher value. The mean value is affected. The so-called Bollinger Bands are not only used to analyse exchange rates, but are also used on the stock market.
The Forex indicator is very popular among analysts and is often used. Boillinger Bands put prices of the past 20 days into a mathematical relationship. A distinction is made between a total of three bands: the middle, upper and lower band. The constellation of the bands to each other is then analyzed by the trader. If the result is a plateau, for example, a trend reversal is assumed. However, downward and upward trends can also be identified.
The Relative Strength Index is assigned to technical analysis. Formulas are given for the average price development of a value. Signals are derived if the real price deviates significantly from the calculated average. The interpretation of the signal is very simple.
In the case of strong downward deviations, the exchange rate can currently be regarded as favourable. The currency should then be purchased. If, on the other hand, the real rate deviates sharply upwards, the currency is expensive and should be sold accordingly.
Moving Average Convergence/Divergence
The MACD is also part of the technical analysis. Using mathematical ratios, the difference is calculated from two moving averages. The MACD is usually used in conjunction with a signal line. Although Gerald Appel developed the indicator back in 1979, it still has a high significance today. It derives buy and sell signals from past price developments. The MACD is a popular instrument for confirming analytical trends.