5 Best Technical Trading Indicators for Forex Trading
When planning a trade, there are many important things that a trader needs to do. Analyzing the price is one of them. While price analysis is great, it is not the only thing that needs to be done. A careful analysis of the currency pairs is necessary so that trading can be profitable.
There are numerous ways in which traders can analyze the currencies they are trading. One of the best ways of doing this is by using technical trading indicators to track market movements. Technical indicators give a great deal of information to traders, and this makes them the most preferred trading tools for professional traders. Not all technical trading indicators are great though. The following is a quick look at 5 technical trading indicators which are the best for forex trading.
1. Bollinger Bands
This is one of the most practical indicators to use when trading. Bollinger Bands do not just offer an efficient way of tracking volatility but they also include deviations for a more practical view. This indicator has been used by professional traders over many decades and it is one of the most effective. Bollinger Bands consists of moving averages which are plotted against a central measure. The central line can help traders deduce the market conditions depending on how the outer bands move in relation to this line. Bollinger Bands identify volatility in the market with ease. The bands widen when the market is less volatile and contract when the market is volatile.
2. Ichimoku Kinko Hyo
Ichimoku is a well-known technical indicator that is used to measure momentum. This technical indicator is favored by traders because it is great when it comes to depicting future support and resistance. The technical indicator was developed by a Japanese professional as an indicator that would combine different elements of analysis into one. Even though the indicator uses so many lines, it is not difficult to understand with a little practice. The basic premise of the Ichimoku is that various levels of support and resistance can be measured and confirmed by a single indicator. Regardless of its power, this indicator works best when used alongside other indicators.
3. Parabolic SAR
The Parabolic SAR is one of the best indicators in the market when it comes to identification of entry and exit points. This SAR part of the name stands for ‘stop and reverse’. The name of this indicator points to the areas where it is best applied. When a trend is established in a particular market, this technical indicator can be used to follow that trend. With the help of another technical indicator, the entry and exit points can be easily identified. The Parabolic SAR can be used to identify uptrends and downtrends but it cannot be effectively used for range-trading. It is, however, a formidable forex volatility indicator due to its ability to measure momentum.
4. Stochastic Oscillator
The Stochastic oscillator is one of the most versatile technical indicators. This indicator measures the closing price of the asset in relation to the range of that price over a previously recorded period. The indicator is thus a momentum indicator that also reveals many other details about the market. This oscillator operates on the principle that a market that has a general upward trend will tend to close with prices near the high while the market that has a general downtrend will close with prices near the low. The indicator uses a moving average to track the market movements. This indicator performs exceptionally well when it comes to indicating overbought or oversold conditions in the market. This means that traders who use it will have a better chance of knowing when to enter and exit the market.
The Relative Strength Index (RSI), also works in the same manner as the Stochastic. This indicator is used to identify temporary positions of overbought or oversold conditions. The RSI is used by traders who specifically want to identify the extremities of the market. This is because this indicator can extend beyond the oversold/overbought points. Since the signals achieved by this indicator can be false at times, it is often used alongside other technical indicators. Other indicators like MACD are great for identifying retracement and the RSI is very effective when used alongside such indicators.