For you to be able to trade smoothly, you need to use a series of data points that help you to predict changes in currency and prices. These data points are called forex indicators. Several types of signs have been tried and used worldwide.
However, you should not just go for any indicator. You need to understand how each one of them works before settling for a particular one. To help you choose the appropriate indicator for your trade, here is a look at some of the most commonly used types.
The Moving Averages Indicator
The moving averages involve measuring the variance in prices through a certain period of time with much consideration to the most recent data to ensure that sudden changes in rates are taken into account.
Moving averages can be used to determine the momentum of the price according to the angle of the averages, to show the trading bias by clearly indicating the price location, to show the direction of the movement of prices, and to use the resistance levels to confirm the price support.
Forex Fibonacci Indicator
This forex indicator involves using a number sequence as a platform of support and resistance to help you to determine when to buy and when to sell. The most commonly used ratios are 0.382, 0.500, and 0.618.
If the price falls below 0.328, then the market is reversing the upward trend and will most likely meet resistance on the three common ratios, which are usually an indication of strong support. If it rises above 0.328, the sign for you is that the market is reversing the downward trend and will find resistance at the three ratios.
The Stochastic Indicator
This indicator is based on the observance of oversold conditions on a scale of 0 to 100 percent. Two lines are produced after stochastic calculations: the %k line and the %D line. These lines are used to indicate oversold conditions. The trading signal is given by the difference between the prices and the stochastic lines’ indication.
The Relative Strength Indicator
This forex indicator observes the upward and downward movement of prices and gives the index in a range of 0 to 100 percent. A situation with an index of greater than 70 percent means that the prices have risen more than the expectations of the markets. In contrast, a condition where prices have fallen below the expectations of the markets is characterized by an index of below 30 percent.