Technical indicators in Forex

Trading indicators of Forex are technical analysis tools mathematically reflecting price and volume. Each of them follows the price having its own formula and tells when price begins to change direction (lagging) or will start to do it (forward) depending on the type of indicator. Depending on that, technical indicators of Forex are divided into two main groups: trend and oscillators.

Technical indicators in Forex

Trend (lagging) indicators

Their application helps to identify the current trend and to filter out the market noise. The most common and, according to many traders, the best technical indicator of this category in Forex is the Moving Average. To describe its work in a few words, we get the following: Moving Average shows the curve line on the graph in the general direction of prices over a selected period of time. And it is possible to express the principle of almost all of the trend indicators.

Trading signals occur when the price moves in the opposite direction relatively recently. It means trend indicators will inform you after some time if the market changes the trend, because they have such a price deviation, which will be noticeable on the background of the analyzed period.

Oscillators (leading)

The oscillators are a bit more complicated. As a matter of fact, they do not just blindly follow the price, they analyze its behavior. Due to this fact, they warn you about the early signs of reversal or trend continuation. For example, let’s consider a popular tool named Stochastic oscillator. The author of Stochastic revealed a pattern that after a few active unidirectional candles market slows down and changes direction to the opposite one. Consequently, he developed an indicator that stops on its top or bottom border when such a situation occurs telling about the possible forthcoming change of trend in advance.

In any case, oscillators do not predict the future. According to statistics, they only report the price often changed its direction in such situations.

There is also classification of technical analysis instruments depending on what market characteristics they reflect. In this case, the indicators are divided into two groups: volume and volatility reflective.

Indicators of volume and volatility

Volumes should be given special attention since it is a type of analysis that includes different ways of collecting data about differences in the theories according to their interpretation.
Volatility (known as activity or market aggressiveness) is an important aspect of trading. This group of indicators is mostly used as movement verifiers.

For example, if the price breaks an important pricing level and volatility values rise, the break will not be unnoticed. However, it will not give 100% certainty in the true breakdown, but will say a lot about the interest of the participants in it.

Any separate indicator included in the standard package of the trading terminal is not very effective, but the use of several, i.e., well-composed trading strategy/system can give you an excellent tool for generating profits.

Each of the tools works more efficiently if applied as intended, i.e. in those commercial environment, for which it was created. For example, trend indicators in the analysis of a flat market will give many false signals while trend trading can bring you a considerable profit. Oscillators are more useful when the market is flat. In addition, the trading style of a particular trader is of great importance Therefore, it is impossible to highlight the best technical indicators in Forex. For every trader, the best tools are the most convenient for him.

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