Basic Indicators for Forex Trading
Sooner or later everyone who starts to trade on Forex comes to the conclusion that one cannot make money without indicators. It's hard to imagine a modern trader without these tools.
- Indicators are the tool, which facilitates market analysis. On the basis of them, thousands of strategies have been created and many of them bring stable profit.
There are a lot of indicators, and it is hard to choose the best ones, because much depends on trader's needs. Some traders trade successfully with Moving Average, others prefer flat currency pair trading using Stochastic, others use Bill Williams' indicators. There is no universal recipe and everyone uses whatever he or she likes.
When it comes to Forex trading for beginners, the main difficulty is choosing a technical analysis tool that suits your trading style. Let's start with the classification of indicators.
Three types of basic Forex indicators
The main forex indicators can be divided into three groups: trend indicators, oscillators and psychological indicators. Let's look at each group separately to understand what they are.
The trend is our friend
Trend-following indicators are used for determining the market direction. They are usually used for determining the trend for the medium or long term. Thanks to such indicators you may determine the market trends, find the turning points, monitor the new trends.
The disadvantage of indicators is their lag. It means that the market has already been actively moving in another direction, while indicators give out signals of an old trend. To this category of indicators can be attributed the following tools: Moving Average (moving averages), Bollinger Bands (Bollinger Bands), Envelopes and others.
Oscillator or search for critical zones
Oscillators are used where trend indicators do not work. When prompted by such an assistant, the trader anticipates the direction of the asset, which is located in a narrow range where the market is always volatile, moving sharply in one direction and then in another. It should be noted that the oscillator shows a slight lag and sometimes it gives a signal ahead, allowing you to enter the market before the momentum starts. Such indicators include Stochastic, RSI, Momentum, etc.
Psychology is our all
The third group is psychological indicators which defines the market participants' mood. Such an indicator will not give you the exact point of entry into the deal, but will help you understand the mood of the market around a particular asset. Psychological indicator can help you better understand the mood of the crowd and understand how an event can affect the pricing.
Despite the vast number of indicators and their differences, each tool is useful separately, and each can give good entry points into the market. By combining indicators, a trader reduces the number of bad signals by filtering them out, which increases the chances of a profitable trade.
Where can I download basic Forex indicators?
Most indicators are freely available. You can easily find them online by simply typing "forex indicators" in the search bar. Most of the indicators are free. There are, however, some for a fee, but these are exclusive tools.