Everything You Need to Know about Forex Indicators
There is a lot to think about when you are first starting out in forex trading. From choosing a currency pair to figuring out which trading broker you want to use, it’s hardly surprising that many newbie traders get a bit confused. Often, it is the technical side of forex trading that causes the most issues. In this article, we are going to discuss the ins and outs of forex indicators so you can make smart trading decisions and minimize your losses.
What is a Forex Indicator?
Think of a forex indicator as a large black cloud drifting across the sun. You notice it and think that now is a good time to fetch the washing in before it rains. Indicators are signs that a trader looks for, signs that suggest they need to sell or buy. Using forex indicators is not an exact science and many tools are open to interpretation, in much the same way as a tarot card reading is. However, most forex traders rely on a few indicators to help them decide when it is a good time to enter the market and make a trade.
Different Types of Forex Indicators
When you open a trading account with a reputable forex broker, it is worth spending some time checking out the many tools at your disposal. For example, easymarkets.com has a learn centre, which you can use to educate yourself on the complexities of forex trading. Don’t rush this process. There are different tools and indicators, so it is worth getting to know how they work before you use them.
MetaTrader is the most popular trading platform for forex brokers. Like other trading platforms, it comes with a selection of indicators. Not all of them are useful but try them out before you make a final decision.
One of the more popular ones is a Moving Average indicator. This helps you track underlying trends to see which way the market is moving. Data is presented in a graph, which makes it easier to digest.
The RSI or Relative Strength Index indicator has been a popular one for many years and you will find it on most trading platforms. This indicator produces a candlestick chart that indicates whether a currency is ripe for a fall or rise.
Bollinger Bands are another technical indicator for measuring currency movements. It’s helpful if you want to analyse cyclical patterns and limit your risk exposure. The bands are curves that follow the moving average (the middle band). High and low bands show you when a currency is going too high or low. They are a useful analytical framework used by most experienced traders.
Stochastics is another tool for identifying currencies that are overbought or oversold. Trend lines indicate when it’s time to buy or sell.
The Moving Average Convergence and Divergence (MACD) is another popular indicator. Use it to indicate when it is time to buy or sell.
Used in isolation, one tool might not be that helpful, so work with a few to see which ones are the most useful to you.