Major Functions and Types of Forex Indicators
Being the world largest financial market Forex is still very dependable on all fluctuations and changes as well as on political and economic situations happening all the time all over the world. Many investors have to make their decisions basing on unstable political and economic news changing day after day. Well, while you can’t change the fact Forex depends on countries economy because deals with trading currency pairs you can learn the ways to stay in the benefits all the time using the so called industrial production indexes to forecast the market trends. All experienced traders use such market indicators especially if they are highly interested in long-term trading.
photo/ Gerd Altmann
The following article deals with explanation of the major functions and types of Forex indicators which play the significant role when it concerns predicting the market trends. In brief all Forex indicators stand for meaningful and effective tools widely used by traders to predict market trends in future and try to determine prospects dealing with these future trends at the Forex market. By predicting the most probable ups and downs at the FX market a trader can buy or sell certain currency pairs investing money in these or those profitable deals.
There exist a lot of Forex indicators offered by such reputable platforms as MetaTrader but there are only few of them that can be classified as the most widespread and popular among FX traders:
1) Moving averages Forex Indicators
These indicators can be in their turn classified to the simple and fast-growing ones. Simple moving averages are calculated when one pluses the closing price of a certain currency pair to a number of all time periods involved and then divides this total number by number of time periods again. To make it more obvious: this is the price of a certain currency pair during a certain time period. And fast-growing or exponential moving averages are practically the same as simple ones, but a trader heeds the latest time period in such way calculating the moving average and using smaller and more specific time patterns. Any moving average indicator gives a chance to estimate the present situation of a market trend. And consequently, by using moving average numbers you can easily determine a location and direction of the price of a certain currency pair.
2) MACD Forex Indicators
Here belong moving average convergence divergence (MACD) indicators reflecting the relation between two moving averages of the prices of a certain currency pair. MACD is easily calculated by deducting the exponential moving average number calculated for 26 days (according to EMA: exponential moving average) from 12 days EMA. The so-called signal line (the EMA for 9 days) usually serves as a trigger allowing figuring out if there is a high time to buy or sell. These signals can be also classified into 2 types:
– crossover: when MACD goes down below the signal line it means that a trader has to sell and when MACD rises over the signal line it means a trader should buy.
– divergence: denoted a change of a currency pair if this pair is not correlated with movements of the MACD.
3) Relative Strength Index (RSI), like ASX 200 index
It stands for the indicator of a technical impulse that can compare the general quantity of the latest profits towards the latest losses and then determines conditions (whether overbought or oversold) of a certain currency. It usually ranges from zero to hundred (sometimes from 0 to 70). Certain currency is called as overbought when RSI is more than 70 and when it reaches 30 or less there is a signal for selling the currency. Experts advise to use these Forex indicators in a careful way because they can send the wrong signals due to unsteady conditions of market trends.
There are also such FX indicators as chart patterns (belong to technical indicators used when the situation is pretty much stable), trend lines and channels and support-resistance levels (based on the developing schemes when the price of a currency pair stops to move in a certain direction).
Author: Andrew Sanchik
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