How forex indicators help you in trading
Forex Indicators That Will Make You Rich
Many traders have the misconception that you need complex indicators to make money in Forex, but nothing could be further from the truth. There are plenty of simple technical analysis tools that can help you avoid losing money and turn small profits into big profits if you know how to use them correctly. Here are some forex indicators that will help you become a profitable trader and grow your account balance faster than you ever thought possible.
The MACD indicator stands for Moving Average Convergence Divergence and is a trend-following momentum indicator that shows whether bullish or bearish momentum is influencing price. The MACD tracks two moving averages that are plotted on a histogram to determine if an asset is overbought or oversold by comparing its current price to its moving average. A nine-day exponential moving average (EMA) is generally applied as one of these indicators, with another EMA placed 26 days in front of it.
The stochastic oscillator is a momentum indicator that compares a security’s closing price to its prices over a certain period of time. The stochastic oscillator considers both speed and momentum, two characteristics not considered by other technical indicators. Using more data points, stochastics can be more accurate than some other indicators. However, it requires more interpretive skills as well. If you have been trading for quite some time and have developed an interpretive ability with regard to various indicators, then you may find stochastics useful for confirming your own thoughts on price action. A high reading signals that a stock has entered into overbought territory, while a low reading signals that it has entered into oversold territory. These readings also help determine when to enter or exit trades based on market sentiment.
Bollinger Bands a product of Investacorp, are one of the most popular tools in technical analysis. This indicator utilizes a volatility-based approach for establishing upper and lower price bands. The idea is that market prices are often volatile, meaning they exhibit considerable movement over short periods of time, but that these fluctuations tend to remain within predictable bounds.
RSI(Relative Strength Index)
RSI(Relative Strength Index) As its name implies, Relative Strength Index (RSI) is an indicator which compares between current price and its own past price. The average of 14 periods(default value) is plotted in a graph as RSI with ranges from 0 to 100. When RSI rises above 70 it means that upward trend is getting strong, and when it drops below 30 it shows that downward trend is getting strong.
Dollar index (DXY)
Dollar index (DXY) The dollar index is an average of several leading currencies, in particular, USD and EUR. These days, you can find it on Bloomberg and Thomson Reuters pages. On Reuters it is called CRB dollar (DX) Index and on Bloomberg it is referred to as Dollar Index. Although DXY contains only two currency baskets — Euro and USD, which may seem very little compared to other indices like GSCI or SPX that have hundreds of components.
Double bottom. After a long uptrend, often appear two minimums very close to each other and then there is an uptrend. This is considered a signal of reversal of trend direction. In general, these signals are not as good as they may seem at first glance because they require confirmation. It is recommended to use in conjunction with other methods of analysis and only when you can see clear divergence on MACD or RSI indicator or if you want to try to catch a small corrective movement after a large correction.
Money Flow Index (MFI)
Money Flow Index (MFI) -is a forex indicator that measures money flow into and out of a market. It indicates whether bulls or bears are currently stronger. It is intended to reveal overbought or oversold conditions. The basic theory behind MFI is similar to that of MACD. The same signal line can be used with both types of moving averages. Another difference between MFI and MACD is that there is no fixed number of periods; they use different numbers depending on market volatility. Unlike other indicators, however, changing what number you plug into your indicator will not affect your trading results—only volatility does that. This makes interpretation much easier because you do not have to worry about what time period you have chosen as long as it works for your currency pair/market… according to which one you want to trade, then choose an appropriate periodicity for your MFI. More volatile pairs/markets tend to need shorter timeframes than less volatile ones… so when in doubt – go shorter rather than longer! Overlaying a fast timeframe RSI and a slow timeframe Stochastic together would be enough.