A mathematical formula lies at the heart of every indicator. All calculations are made in such a way. Formulas may be used depending on the type and intended purpose of indicators. For example, some of them are aimed at calculating the price for a certain period while others compute closing prices, etc.
Indicators look as charts, which clearly demonstrate fluctuation of rates for a specific time. To learn to read them, you have to take some time.
Technical indicators are popular among beginners and experienced traders. All calculations are made by the software, and the trader gets the result, which should be correctly deciphered and used in practice. How successful a transaction will be depends on the skill to use indicators.
What are the kinds of technical indicators there?
Any trading indicator, even the best one, has its own peculiarities. For a more accurate analysis, an experienced trader uses more than one tool. The combination of indicators allows you to get balanced information about the situation in the Forex market.
There are several groups o Forex indicators:
There are also tools that combine the capabilities and advantages of several of these groups at once. It is worth covering each of them in detail.
A trend in the Forex market is a price movement in one direction. There are three types of trends: bearish, bullish, sideways. A bearish trend signals a fall in price: in this case, there are more sellers in the market than buyers. A bullish trend means the price is moving up, while sideways means the price fluctuates within an undefined range.
Thus, trend indicators are designed to determine the direction of price fluctuations. If prices move up (bullish trend), the indicator gives a signal to buy, if the price falls (bearish trend), it gives a signal to sell. The trade depends on the ability to read indicators.
The advantages of trend tools include:
- flexible settings to the needs of any trader in the Forex market;
- clear and simple application;
Such indicators have drawbacks too. The main disadvantage is the lag of indicators from the real price. The fact is that past price data are used to draw up charts.
The most popular tools in this group are:
- simple moving average;
- exponential moving average;
- convergence/divergence of moving averages;
- Bollinger bands.
This is a separate category of tools, different from all others. The purpose of information indicators is to provide additional information to the trader. They can also be classified according to the type of parameters:
- by time;
- by lot;
- by profit;
- news, etc.
To open or close a successful transaction, it is not necessary to use informational indicators. However, their application in practice can provide the trader with a significant advantage. Considering even the smallest details, a market participant can develop a very successful strategy. You can find and download indicators on both paid and free platforms. It is very important to study the description of each tool, to have an idea of the principle of its operation. You can also study the TOP most popular indicators.
These are graphical displays allowing you to instantly understand where the market is right now. These indicators are used to get signals if there’s no clear trend in the market. In most cases, oscillators are made in the form of charts where the trend line goes above or below the middle line.
The benefits of oscillators include:
- A wide choice of instruments, which allows you to choose the most suitable option for the needs of each trader and market type.
- Flexible and simple settings that can be adapted to any request, thus increasing the accuracy of the strategy
- Simplicity and clarity, which is very important for newcomers to the market. In almost all cases, the participant is required to trace the curve.
- Forward-looking nature of the signals, which allows the trader to analyze the situation in advance and make the right decision on the transaction.
In addition to the advantages, oscillators have disadvantages, which are also important to keep in mind.
The most significant of them are:
- Possible false signals. This occurs due to the slow restructuring of the software during a change in trend. To avoid such a situation, experts recommend using additional tools, as well as relying on your own experience and ability to analyze the current situation.
- Lack of strict settings. To get accurate signals for each option, custom settings are required.
The most popular oscillator tools are:
- relative strength index — RSI;
- Williams R indicator;
- MACD, etc.
Experienced traders advise using several indicators at once. This approach reduces the risk of false signals and increases the probability of a successful transaction.
This tool is the most simple and powerful at the same time. However, many traders overlook it. The fact is that volume indicators are usually used in the stock market. Forex is an over-the-counter market, dues to this it is hard to predict the volume of sales and purchases for only one tool. However, you shouldn't dismiss it.
The following volume indicators will be useful for Forex traders:
• On Balance Volume;
The use of technical indicators may cause certain difficulties for a beginner. At first, a trader may have doubts and mistakes. To avoid this, as well as to get the hang of it, you can use a demo account with a reliable and trusted broker.
Principle of working with indicators
Technical analysis plays an important role in any market allowing you to successfully open and close transactions. These tools help you study past price movements and predict future ones, helping you make the right decision. Indicators are in demand among both beginners and seasoned traders. However, when working with them, it is necessary to take into account a number of principles:
- If you decide to use indicators, you should carefully study the information about the selected tools. It is important to understand how the formulas work, what the changes show. All this is necessary so that in the future you can make the right decision. It should also be taken into account that some indicators may redraw.
- Get through the settings. Most of the indicators are easily customized to the preference of a particular person. By changing the settings, you can make the tool more or less sensitive. However, you should keep in mind what each specific setting means and what change it can bringю In case of difficulties, you can get back to the universal default settings.
- Use multiple tools at the same time. This reduces the risk of errors and false readings. In this case, you should understand the features of each indicator.
The goal of any indicators is to collect, generalize and analyze data. Given a proper approach, these tools can make the trader's life much easier. Indicators will be helpful for beginners in the financial market, as well as experienced traders. One can automate the trading process and make up his own profitable strategy using them.