Forex trading is a popular industry It allows people to make money by exchanging one currency for another. It’s a big industry that processes trillions of dollars every day, making it bigger than stocks, cryptocurrencies, and commodities.
There are many different ways to make money in currencies, depending on your trading style.
In this case, we are interested in looking at the technical side, and therefore in this article we will look at it The best indicators For use in forex trading.
How to analyze forex pairs
Forex traders use several methods to determine whether they want to buy or sell a currency pair. The first broad approach is known as Fundamental analysis It includes consideration of the broad activity in the financial market.
For example, in this, you can look at whether the Federal Reserve will raise interest rates and how that will affect the currency pair. similarly, You can evaluate economic growth For a country or key data such as employment, manufacturing, industrial production, and inflation.
The other approach is known as Technical Analysis. This method has three main categories. First, it involves the use of technology pointers Such as moving averages and the relative strength index (RSI). These pointers are used for a variety of reasons, including Track trend, momentum and volume.
Secondly, it includes the use of chart patterns Such as triangles, rectangles, head and shoulders. Finally, there Candlestick patterns Such as Doji, Harami, Shooting Star, Hammer, Morning Star and others.
Best forex indicators for day trading
Moving averages
Trend tracking is one of the best techniques in foreign exchange trading. It is noteworthy because it involves identifying an existing trend and following it. For correct trends, the best approach is to use technical indicators such as moving averages.
Moving averages just a try Look at the average price of a forex pair over time. A good example of how the indicator works is to look at what happened during the Covid pandemic. Back then, countries like the United States used to have daily Covid-19 cases.
For comparison purposes, they then calculate a moving average. As such, if the total cases on Friday is 2000 and the 7-day moving average is 500, then the situation is getting worse.
There are several types of moving averages in forex. These types are simply trying to solve the challenges that other mediums face.
For example, Simple moving average (SMA) It looks at the average over a certain period. the Accelerated Moving average, on the other hand, Focuses on recent days or periods.
The best way to use moving averages is to follow the trend. This is where you buy a pair when it is above its moving averages, as shown above.
You can also use it to trade reversals. A common approach is known as the Death Cross or the Golden Cross. The golden cross is where the 200-day and 50-day moving averages intersect at a lower price. It indicates that the upward trend will continue.
Bollinger Bands
Bollinger Bands It is a technical indicator It is derived from moving averages and standard deviation. It is calculated by first calculating the moving average of a currency pair and then finding its negative and positive standard deviations. The resulting indicator consists of a moving average and two bands.
Bollinger Bands are used by traders in several ways. First, you can use it in following trend. In this, if the currency pair is going up, you can place a long position as long as it is between the middle and upper lines of the slides. The condition is stronger when the pair is strongly on the higher side of the bands.
Secondly, you can use Bollinger Bands to confirm reversals. In this case, reversal usually occurs When the price moves below the middle line From Bollinger Bands.
Moreover, you can use it to measure volatility. If it is very wide, it means that there is a lot of volatility in the market.
Relative Strength Index (RSI)
the RSI he Indicator that look at the current and historical strength of the asset. that it The most popular oscillator in the financial industry.
The RSI indicator consists of a line and two key levels Determine overbought and oversold levels. When a forex pair reaches an overbought level, it is usually a signal to sell. Likewise, when it reaches an oversold level, it is usually a sign of buying.
You can also use the RSI indicator to trade the differences. The difference happens When the RSI is rising at a time when the price is falling. It usually sends a signal The trend is losing steam.
As such, when it occurs, it is usually a sign of exiting an existing trade or initiating a new trade in the other direction. You can also use the RSI indicator to follow the trend. Here, you buy an asset when the RSI is rising and vice versa.
VWAP
Volume weighted average price (VWAP) It is another important technical indicator For use in technical analysis in forex trading. As the name suggests, VWAP looks at the average price of an asset compared to its volume.
amount It is an important part of trading because Shows how traders position themselves. Unlike other indicators, the VWAP It is a tool during the day Repeat each session.
Ideally, traders make long positions when Bullish forex pair Crosses the VWAP indicator. It also places a sell trade when the asset crosses the VWAP heading downwards, as shown below. Traders hold these positions until signs of a reversal appear.
Stochastic oscillator
the Stochastic oscillator It is another popular indicator used in forex trading. It is an oscillator, just like the Relative Strength Index (RSI), It aims to identify overbought and oversold levels. He. She Close price comparison from an asset to a domain prices over a given period.
The indicator consists of Two lines: %K and %D. Also, it has overbought and oversold levels. As such, in most cases, traders sell the asset when it moves to the overbought level and vice versa. You can also use it in trend following, buying when the price is going up.
Ichimoku Kinko Hyo
Ichimoku Kinko Hyois a trend indicator that has many parts, including tenkan sen, kijun sen, senkou span A, senkou span B and others.
First look From Ichimoku It’s usually scary Because of its many moving parts. However, the use of the pointer is actually basic.
The easiest way is Filter all lines and stay with the ichimoku cloud. When the bullish currency pair moves above the cloud, it is a signal to buy. Likewise, if it moves below the cloud, it is usually a sign of a short position.
For example, in the chart below, a buy signal will be confirmed if the price manages to move above the Ichimoku Cloud.
average trend indicator
The Average Directional Index is a technical indicator that measures the strength of a trend. While it is very similar to the oscillator, the indicator It is usually classified as a trend tool.
When the asset is rising, trend strength usually appears when it moves above 20. While ADX is a popular indicator, It is not used alone. In most cases, traders use it in combination with other indicators such as moving averages and the relative strength index (RSI).
Fibonacci retracement
the Fibonacci retracement He is Not a technical indicator however It’s for necessary tool when analyzing assets. It is a mathematical tool based on the approach known as the Fibonacci sequence. As a result, it contains sequence-dependent base levels such as 50%, 38.2%, and 23.6% levels.
The instrument is plotted by connecting the upper and lower swings. Here is a good example of this indicator in action.
summary
There are many indicators that you can use in forex trading. But we think these are the best ones to use. All of them are easy to understand, interpret and use.
In particular , You don’t need to know how to use them all. Alternatively, you can master two or three of them, along with a Fibonacci retracement and you’ll be fine.
Useful external sources
- What is the most reliable forex indicator? – Quora