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What is Forex Indicator?
Forex trading is all about carrying out analysis and in order to evaluate market data, indicators are used.
Forex indicators allow you to analyse the market in various ways, such as with regards to its performance, currency prices, volume etc. They are also commonly referred to as technical indicators since they allow the trader to carry out technical analysis.
There are several types of indicators that you can use, and at times one might feel a bit overwhelmed which to use. Traders start experimenting different indicators so as to choose one or a few. The more indicators you add to a strategy the more complex it will be, and in the case of beginners it is often best to stick to one indicator. It is important to be careful when choosing the indicators to be used as you do not want to use two indicators from the same type, but rather different ones to see that they can complement one another.
While the range of indicators is quite broad we can classify them in these main types as follows:
- Trend indicators these indicators help you to identify what is the direction of the trend, as well as its strength. Some types of trend indicators include the Moving Averages, the Parabolic SAR, and the Average Directional Movement Index (ADX).
- Momentum indicators these indicators measure the speed at which the exchange rates change. In fact they are also sometimes referred to as rate of change indicators. Some examples of these indicators include the Relative Strength Index, the Moving Average Convergence Divergence Oscillator, and the Stochastic Oscillator.
- Volatility indicators as the name itself implies, these indicators focus on the volatility of currency pairs. Bollinger Bands and the Average True Range.
- Volume Indicators volume is not as simple to observe and indicators can be computed by using approximate data derived from exchange rate tick movements. Some examples include the Chaikin Money Flow, and the Accumulation Distribution Line.
While there are several forex indicators that you can use try to choose wisely so as to gather proper data and be better able to formulate good decisions. Having the right combination of indicators in your trading strategy can make or break your trading goals. It is therefore important to start backtesting on historical data on a platform such as MetaTrader 4, MetaTrader 5 or cTrader and if you can see that your strategy is consistently generating profitable signals over a series of timeframes in a demo account you can then move on to live trading.
Forex indicators allow you to analyse the market in various ways, such as with regards to its performance, currency prices, volume etc. They are also commonly referred to as technical indicators since they allow the trader to carry out technical analysis.
There are several types of indicators that you can use, and at times one might feel a bit overwhelmed which to use. Traders start experimenting different indicators so as to choose one or a few. The more indicators you add to a strategy the more complex it will be, and in the case of beginners it is often best to stick to one indicator. It is important to be careful when choosing the indicators to be used as you do not want to use two indicators from the same type, but rather different ones to see that they can complement one another.
While the range of indicators is quite broad we can classify them in these main types as follows:
- Trend indicators these indicators help you to identify what is the direction of the trend, as well as its strength. Some types of trend indicators include the Moving Averages, the Parabolic SAR, and the Average Directional Movement Index (ADX).
- Momentum indicators these indicators measure the speed at which the exchange rates change. In fact they are also sometimes referred to as rate of change indicators. Some examples of these indicators include the Relative Strength Index, the Moving Average Convergence Divergence Oscillator, and the Stochastic Oscillator.
- Volatility indicators as the name itself implies, these indicators focus on the volatility of currency pairs. Bollinger Bands and the Average True Range.
- Volume Indicators volume is not as simple to observe and indicators can be computed by using approximate data derived from exchange rate tick movements. Some examples include the Chaikin Money Flow, and the Accumulation Distribution Line.
While there are several forex indicators that you can use try to choose wisely so as to gather proper data and be better able to formulate good decisions. Having the right combination of indicators in your trading strategy can make or break your trading goals. It is therefore important to start backtesting on historical data on a platform such as MetaTrader 4, MetaTrader 5 or cTrader and if you can see that your strategy is consistently generating profitable signals over a series of timeframes in a demo account you can then move on to live trading.