Forex or Foreign Exchange is a global market for forex trading currencies. It is a vast global financial market, with over $5 trillion traded daily. Forex analysis is the process of examining the changes in currency pair prices and the forces influencing those price changes. It has three types of analysis: fundamental, technical, and sentiment.
Forex indicators are a huge part of technical analysis. It is considered an essential part of forex trading in the forex market. It is used by traders worldwide to aid the decision-making process. So in this article, I am here to share the best forex indicators to trade.
Forex Indicators to Trade
Forex indicators are an essential tool for forex traders. Many forex traders use these forex indicators daily, which helps them understand when they can buy or sell in the forex market. These forex indicators are a huge part of the technical analysis, and every fundamental and technical analyst should be aware of these forex indicators.
Forex indicators are part of technical analysis, one of the forex analysis methods. Technical analysis works even better with other forms of analysis, i.e., fundamental analysis. Forex indicators help to analyze the historical price movements and determine forecast future price movements of financial market conditions through technical analysis.
There are four main categories of forex indicators – Trend indicators, Momentum Indicators, Volatility Indicators, and Volume Indicators. In simple terms, forex indicators are one way of examining forex market data. Look at the top 2 best forex indicators to trade in 2022.
Moving Averages Forex Indicator
Moving averages is one of the best forex indicators to trade in the forex market. It is a stock indicator commonly used in technical analysis. It is primarily used with period lengths of 9, 20, 50, and 200-day periods. Every forex trader should know the concept of moving average indicator.
The central banks and multinational companies move the forex market. Therefore, forex traders need to understand the forex market action at the macro level. Moving average indicates the average value over a particular period that has been chosen. It indicates the overall price sentiment indicators representing the average price of previous candles ‘n’ number.
It represents the average closing price of the forex market over a specific time duration. In forex trading, buyers control the price if the prices are above the moving average. While the prices are below the moving average, the sellers are controlling the price.
Therefore in a forex trading strategy, a forex trader should focus on buy trades, i.e., the price is above the moving average or close to it. So, a forex trader should know this moving average concept because it is one of the best forex indicators to trade in the forex market.
The moving average has two types – The Simple Moving Average (SMA) and the Exponential Moving Average (EMA). Simple Moving Average considers the previous periods with equal weight, which helps traders understand the forex market concept. While the Exponential Moving Average focuses on the most recent periods, a higher value in the average helps traders enter forex trading.
SMA = A1 + A2+…+An divided by n,
Where: A = Average in period n,
n = Number of periods
EMAt = [Vt x(s/1+d)] + EMAy x [1-(s/1+d)]
Where: EMAt = EMA Today,
Vt = Value Today
EMAy = EMA Yesterday
s = Smoothing
d = Number of days
Bollinger Bands forex indicator
Bollinger Bands is also one of the best forex indicators to trade in the forex market. It was developed by an American technical analyst Mr. John A. Bollinger. It is used as a forex volatility indicator to determine a trade’s entry and exit points. Overall, it is very easy to use and provides reliable forex trading.
It has three parts, the upper, middle, and lower bands. All three bands are often used to determine overbought and oversold conditions. It has two standard deviations in upside and downside and a classical moving average in the middle band. It reflects the upper and lower lines works as dynamic support and resistance levels.
Any rejection from resistance levels indicates a possible entry, and any breakout from these levels also provides profitable forex trades. When levels touch, the upper band denotes a potential short trade with the moving average in the middle as a target. While the touch of the level, the lower band indicates a potential long trade with the moving average as a target.
However, any candle close below or above the middle line creates an opportunity for testing the higher band or next level and vice versa for the short side. Bollinger Bands work best indicators to trade in sideways markets. The best part about this indicator which helps characterizes the trade price and volatility over time of a financial asset. So, it is also one of the best forex indicators to trade in the forex market.
BOLU = MA (TP, n) + m* σ [TP, n]
BOLD = MA (TP, n) – m* σ [TP, n]
Where BOLU = Upper Bollinger Band
BOLD = Lower Bollinger Band
MA = Moving Average
TP means Typical Price = (High+Low+close) / 3
n = No. of days in smoothing period (typically 20 value)
m = No. of standard deviations (typically 2)
σ [TP, n] = Standard Deviation over last n periods of the typical price
Major Forex Indicators To Trade
Relative Strength Index (RSI)
The Relative Strength Index is the major forex indicator to trade J. Welles Wilder developed it. It belongs to the oscillator category and ranges from 0 to 100. The main aim of this indicator is to measure the speed & change of price movements and find which direction has more strength.
Forex traders used these forex best indicators for uncovering momentum, showing when an asset is in the overbought or oversold camp. If the RSI indicator moves above 70, it is considered an overbought or uptrend forex market, while if it moves below 30, it is considered an oversold or downtrend market. It is also one of the best forex indicators to trade in the forex market.
RSI = 100 – [100 / 1+ RS]
Most Volatile Forex Indicators To Trade
Below is the list of the top 5 most volatility-based forex indicators to trade.
- Bollinger Bands
- Keltner Channel
- Donchian Channel
- Average True Range (ATR)
- India VIX
Time-Tested Ways Work With Forex Indicators To Trade
Forex trading has some of the strategies to gain a profit. Momentum trading, Range trading, Trend trading, Scalping, Copy trading, Fundamental analysis, Technical analysis, and more are important to trade. Using some forex indicators concept in trading is risk low, but if traders don’t use it properly, it also leads to high risk.
Trade With Essential Strategies On Forex Indicators
When using forex indicators essential strategies, it helps below categories while on forex trading.
- It helps traders with trading execution
- It helps traders with their market selection
- It must be free and accessible
Conclusion – Forex Indicators To Trade
Hopefully, you got a clear overview of the best forex indicators to trade. We also discussed the best forex top indicators, majorly traded forex indicators, the most volatile indicators, and the essential strategies of forex indicators. The forex market is a zero-sum game in which one person experiences profits while another suffers losses.
Before trading, a trader must have good knowledge about the forex market and trading. Then only traders will gain a profit in the forex market. So, look at the above article to find the best forex indicators to trade.