In order to gauge how the market is performing and analysing the data, traders use forex indicators. The best forex indicators give a detailed forex market report for effective trading strategies and higher returns. It is a way to examine the forex market performance through various data; it could be historical data, present data including prices of currency pairs, the volume of trade and market performance.
Thus, helping traders to predict the price changes and other factors with these indicators. The patterns could be studied, and what patterns repeat are also emphasised more for a benefit.
The best forex indicators incorporate a list of indicators that aid traders in the best possible ways. A trader can never go wrong if the indicators are suitable with all other factors in mind. However, this takes years of experience to reach such a professional position.
What is the Forex Market?
The forex market is the foreign exchange market that operates for 24 hours and is the most liquid. The accessibility and high convertibility of currencies make it the highest traded market online. Foreign exchange markets trade in foreign currencies that are exchanged internationally at an exchange rate. Investors trade in various currency pairs to make a high profit.
The market is a decentralised market which means it does not have a centralised place of working. It is an electronic system connected through a network of computers. Therefore, traders can invest any time they want and from anywhere around the world. A globally traded currency market with high reach and trading options for investors.
It basically has some major currencies that traders mainly prefer, including EUR/USD, GBP/USD, USD/JPY, USD/CAD, USD/AUD and USD/CHF etc.
What are the Forex Indicators?
The forex indicators are used in the trade of forex currencies to examine whether the investment decision is right or not. A helpful tool for investors as it aids them with the analysis of the financial markets. Traders use the best forex indicator for market analysis in depth and predict the market fluctuations.
The best forex indicators take into account all the key aspects of the market, including the historical data, present price changes, other factors and fundamental areas for getting a clear idea about the future change. Thus, based on these, investors predict the forex market movements.
Indicators even display patterns and charts that are useful for the study of the market. With the pattern formed and lines drawn of the market movements, traders are able to analyse their market position. Moreover, the support and resistance levels aid traders to know the entry and exit points of the trade.
Like support and resistance level, there are many other best forex indicators that support traders in the forex market. Some of the indicators are moving average, pivot point, trend indicator and many more.
Best Forex Indicator
There are various indicators in the forex market; however, these are divided into four categories, namely, the trend indicator, momentum indicator, volatility indicator and volume indicator. The categories incorporate the major indicators of the forex market.
Here, we have discussed the best forex indicator for better use by investors in the forex trade. So, let’s quickly understand the indicators:
Relative Strength Index (RSI)
A relative strength index is a technical tool that helps traders analyse the price changes in the forex market over time. It is classified as an oscillator that is best for analysing price movements. RSI uses a mathematical formula that calculates the currency values and their overbought and oversold positions in the market.
RSI oscillators help traders to illustrate the hidden and visible divergence signals of the forex trade. Indicating the momentum of the prices, RSI is useful for traders of markets to make significant technical decisions.
If the RSI reading in the pattern formed is above 70, then it is an overbought trend, which means that the forex security trader wants to purchase is overvalued, and the trader should wait for it to come down. Thus, traders should look for a reversal of the trend to buy the security.
On the other hand, if the RSI reading is below 30, it is an oversold trend where traders should go long. Here, traders can wait for reversal and then sell the security in the market.
Moving Average (MA)
Moving average is also a technical indicator that checks on the average price of the security traded. In forex trading, the currency pair moving average is calculated via a formula to take any further decision. The indicator is pretty useful and used mostly by every trader.
Moving average recognises the price trend removing the extra noise of short term trade. It is a helpful indicator that shows the current price with emerging trends of the market. They work via the use of data and mathematical formulas to get the price changes in a specific time period.
The most frequent timeframes used in moving averages are 50, 100, and 200 days. The indicator is preferred largely due to its simplicity and uses over the years. In addition, traders can rely on moving averages indicators for analysing the price fluctuations. Thus, the best forex indicator for currency trading.
Moving Average Convergence Divergence (MACD)
The best forex indicator list incorporates yet another indicator named moving average convergence divergence (MACD). This moving average differs from the first one; however, it includes the first one in the calculation part. Here, the momentum of the price change is studied by comparing the two moving averages.
The indicator suggests traders with potential opportunities of the forex market around the support and resistance levels.
The divergence in the moving average shows that the averages are shifting away from one another, whereas convergence shows their coming together and moving closer to each other.
MACD has three important components:
- Signal Line is the representative of the shift in the price and works as a trigger to help traders analyse the buying and selling signals. It is a line of 9 periods MA of MACD.
- MACD Line calculates the gap between two moving averages. It is derived by deducting the 26 period MA from the value of 12 periods MA.
- A histogram is the line of MACD that calculates the difference between signal line and MACD.
The indicator is named after its developer John Bollinger, who was an author and financial analyst. Bollinger Bands are the best forex indicator that illustrates the price range of the security. It uses statistical charts and prices of the forex currency pairs to analyse the volatility of the market.
It can be studied on the charts when the bands are closer, the uncertainty of the market is low, and when they range away from one another, the market is highly volatile. Bollinger bands, through their bands, show traders trading levels and even help traders to speculate in the market for the long term.
When the price of the security is above the Bollinger bands, then it is the indicator of an overbought situation, whereas when the opposite happens, the price is below the band, then it signals an oversold situation of the market.
The forex market tools are valuable for study or price range and factors contributing to the change. Bollinger Bands is also one of the best forex indicators.
Ichimoku cloud is the best forex indicator as it studies both historical and current price changes. Thus, provide traders with high probability trading opportunities. In addition, the indicator is used to analyse the market and know the support and resistance level to take advantage of the reversal or breakout in the forex market.
Moreover, Ichimoku cloud also analyses the price momentum to aid traders in the decision-making process. Thus, a wide range of information is furnished in one indicator, with support and resistance of both present and future trade. Along with the trend direction and investment that would be fruitful in the near future.
There are several components of the Ichimoku cloud that are used for the analysis of the forex market. These are:
- Senkou Span A
- Senkou Span B
- Tenkan- sen
- Chikou Span
A momentum indicator, the stochastic oscillator, is the best forex indicator available for trade. It is a technical indicator that studies the price changes and compares closing and range prices over a timeframe. It is said to be best due to its features of strong accuracy and simplicity in the forex trade.
The indicator signals traders that the security is overbought or oversold in the market, and traders should be careful while investing in currencies. It follows the indicators that when the price is above 80, it is an overbought situation, and below 20, the market is at an oversold situation.
It is a unique trading strategy and indicator as it does not relate to price or momentum but to the pullbacks in the market. Pullbacks refer to the temporary stops in the trend of a security. So, traders look for pullbacks to identify trading opportunities and buy currencies. It is a drawing tool that aids traders with the partial reversals of the forex trade.
The indicator is used for various price actions using the retracement levels. The levels measure the number in percentage to know about the market flip between the two points. There are shallow and deep retracements, shallow ranges from 23.6% to 38.2%, indicating a strong trend and fast move. In contrast, the deep retracement is between 61.8 % to 78.6 %. Thus, the deep retracement indicator shows a strong market trend and lower velocity compared to shallow indicators.
The best forex indicator is to know when a trader can enter the market for good profits.
Average Directional Index (ADI)
An average directional index is a tool used for reading the potential strength of the trend. The indicator has three parts, including ADX (black), Positive (green) and Negative(red). These indicators aid traders to find the trend direction of forex security.
The indicator has positive and negative directional aspects to analyse whether a trend is weak or strong. ADX ranges from zero to a hundred; in this, if the price ranges above 25, it is a strong trend, and if it goes below that, it is called the weak trend.
The best forex indicator is used for analysing the forex market and calculating dispersion. Traders can use the indicator with other tools to make a better investment decision. Standard deviation is a mathematical term and is used by traders to calculate the dispersion in the market.
By calculating SD, traders can enter the market and detect the trend reversal for opportunities. Novice traders can also use the indicator with other tools for a correct decision. In addition to all this, the indicator supports the risk-reward ratio of the traders.
Use of Indicators
The forex market traders should use the best forex indicators for a variety of reasons. Here we have mentioned the reasons why traders should use indicators while trading in the forex market:
- Provides potential opportunities
- Support and resistance levels
- Suits all time frames
- Alerts traders in advance
- Traders can enjoy good profits with the use of indicators
- Price and momentum fluctuations are known
Forex indicators are vital for forex trade; these support the trade of the forex market. Therefore, a trader with knowledge of trade can use these efficiently to earn high profits. The article discusses various best forex indicators to help traders find potential opportunities and price fluctuations for the right trade decisions.
For using the above mentioned indicators, traders can open an account with a trusted and reputed broker such as 101investing review. The broker offers services of trading platform MetaTrader4, which best suits forex trade. Through trading platforms, traders can access various indicators that go with the instrument traded.