A trader should have a good understanding of top forex indicators and how to use them in their favour. These can be, many times, confusing & daunting for the investors to use the trading tools. The most common mistake that traders make while using technical indicators are using more than three tools on the price chart, thus, overloading and making it hard for people to make choices. Second, many beginners rely solely on technical analysers and forget that these tools only show a picture of the market and do not predict the future. Third and last, do not blame the indicators when a trade does not make a profit or work out in your favour. No matter how useful the tool is, one still needs to face losses.
Type of forex Indicators
The technical indicators are majorly categorised into two types:
- Indicators for Trending Market: A trending market is when the price line of an asset is going in one direction, either upwards or downwards.
- Indicators for Ranging Market: A range-bound market is when the price is moving downwards and upwards, in a specific range. It is also called “sideways market”.
All the available indicators in the market are suited for either of them. Here, we’ll study the top forex indicators for technical analysis to help beginners start their trading journey with gains.
Top Forex Indicators for Technical Analysis
(RSI)relative strength index :
Relative Strength Index or RSI is used to compare the magnitude of gains to losses to determine oversold or over purchased conditions of a trading asset. The tool, RSI, ranges from 0 to 100 and the asset is believed to be oversold when the price line hits the RSI 30 mark, and therefore, is likely to rise back in the upward trend. Similarly, the product is overbought when the RSI crosses the 70 levels and is likely to reverse towards the downtrend.
A trader should also be aware that massive rallies affect the RSI and thus might give false buying or selling signals. Further, if the Relative Strength Index is combined with other tools, like MACD, the results are much better.
Moving Average Convergence Divergence(MACD) :
MACD is a popular technical analyser and involves two moving averages of different time frames. For a long term trader, the most common time frames are 50 days MA and 200 days MA, while for short term or intraday traders, 30 minutes and 4 hours charts are most popular. The two exponential Mas used are used to measure the momentum and is defined by the distance between them. Additionally, the convergence and divergence in MACD (moving average convergence divergence) means both averages moving closely and going apart from each other, respectively.
When the “short days moving average” crosses the long day’s MA, the price is anticipated to fall in the coming times. Similarly, when the long term MA falls below the short term MA, the trader should short sell the asset.
As the name suggests, the tool involves two bands and one moving average line in between the bands. These bands denote the deviation away from the middle line and thus showing the volatility in the market. The Bollinger bands adjust themselves based on current market trends. The length between the bands moves further from the MA line as the price becomes more volatile and vice versa if the volatility is stable. Technical traders assume the contraction between the bands as an early sign of high volatility in the market and the tool uses standard deviation as the base mathematical calculation.
Usually, the price line remains between the bands, but when the price starts to touch the edge of the bands, it is an early sign of trend reversal. Note that the price touching the lower band shows oversold and the upper band is used to indicate an overbought market.
Super Trend Indicator:
The super trend indicator is a trend predicting tool and can be used as a trading system for trend following traders. The most common method to use the tool is to enter the market after a pullback. For example, if the price chart is in a downtrend, denoted by a green line, then the trader should for the green pullback and enter the market, short selling the asset, as soon as possible. The same methodology applies to the rising market.
Confluence is not a new indicator but the combination of several technical indicators and uses their trading signals to get better results. The method is useful in eliminating the false signals by technical indicators, which is a common problem among day traders. Applying two-three technical tools simultaneously would mitigate the risk and give a better picture. The most famous combination is RSI, MACD, and Bollinger bands.
Most forex traders spend time looking for the right moment to enter the market. It is equally vital that you know how to quit a trade. The forex market is very complex, there’s no single method to get your trades right. With ABinvesting you can rest assured you will have access to top forex indicators in the service of your trading strategies and successful trade execution.
The Bottom Line
So, these were the top forex indicators to trade for beginners. Although all the forex indicators sound easy to use and straightforward, these become hard & complex when applying them in real-time trading. Some excellent ways to avoid the problem are to practice and enhance your knowledge & skill base. All the above-listed brokers offer free demo account services to test their services and your trading style.
Besides, the broker has a dedicated education page that offers top material & content like e-Books, journals, articles, videos, webinars, seminars, and courses. The content is suitable for beginners and professionals providing easy UI/UX.