It is possible to make money using a countertrend approach to trading. However, for most traders, the easier approach is to recognize the direction of the major trend and attempt to profit by trading in the trend 's direction. This is where trend-following tools come into play. Many people try to use them as a separate trading system, and while this is possible, the real purpose of a trend-following tool is to suggest whether you should be looking to enter a long position or a short position.
So let's consider one of the simplest trend-following methods—the moving average crossover. A simple moving average represents the average closing price over a certain number of days. To elaborate, let's look at two simple examples—one long term, one shorter term. The theory here is that the trend is favorable when the day moving average in yellow is above the day average in blue and unfavorable when the day is below the day. As the chart shows, this combination does a good job of identifying the major trend of the market—at least most of the time.
However, no matter what moving-average combination you choose to use, there will be whipsaws. The advantage of this combination is that it will react more quickly to changes in price trends than the previous pair. Many investors will proclaim a particular combination to be the best, but the reality is, there is no "best" moving average combination.
In the end, forex traders will benefit most by deciding what combination or combinations fits best with their time frames. From there, the trend—as shown by these indicators—should be used to tell traders if they should trade long or trade short; it should not be relied on to time entries and exits. Now we have a trend-following tool to tell us whether the major trend of a given currency pair is up or down.
But how reliable is that indicator? As mentioned earlier, trend-following tools are prone to being whipsawed. So it would be nice to have a way to gauge whether the current trend-following indicator is correct or not. For this, we will employ a trend-confirmation tool. Much like a trend-following tool, a trend-confirmation tool may or may not be intended to generate specific buy and sell signals.
Instead, we are looking to see if the trend-following tool and the trend-confirmation tool agree. In essence, if both the trend-following tool and the trend-confirmation tool are bullish , then a trader can more confidently consider taking a long trade in the currency pair in question. Likewise, if both are bearish , then the trader can focus on finding an opportunity to sell short the pair in question. One of the most popular—and useful—trend confirmation tools is known as the moving average convergence divergence MACD.
This indicator first measures the difference between two exponentially smoothed moving averages. This difference is then smoothed and compared to a moving average of its own. When the current smoothed average is above its own moving average, then the histogram at the bottom of the chart below is positive and an uptrend is confirmed. On the flip side, when the current smoothed average is below its moving average, then the histogram at the bottom of the figure below is negative and a downtrend is confirmed.
In essence, when the trend-following moving average combination is bearish short-term average below long-term average and the MACD histogram is negative, then we have a confirmed downtrend. When both are positive, then we have a confirmed uptrend.
At the bottom of the chart below, we see another trend-confirmation tool that might be considered in addition to or in place of MACD. It is the rate of change indicator ROC. As displayed in the chart below, the orange-colored line measures today's closing price divided by the closing price 28 trading days ago.
Readings above 1. The blue line represents a day moving average of the daily ROC readings. Here, if the red line is above the blue line, then the ROC is confirming an uptrend. If the red line is below the blue line, then we have a confirmed downtrend. A bearish configuration for the ROC indicator red line below blue :.
After opting to follow the direction of the major trend, a trader must decide whether they are more comfortable jumping in as soon as a clear trend is established or after a pullback occurs. In other words, if the trend is determined to be bullish, the choice becomes whether to buy into strength or buy into weakness. If you decide to get in as quickly as possible, you can consider entering a trade as soon as an uptrend or downtrend is confirmed.
On the other hand, you could wait for a pullback within the larger overall primary trend in the hope that this offers a lower risk opportunity. There are many indicators that can fit this bill. However, one that is useful from a trading standpoint is the three-day relative strength index , or three-day RSI for short. This indicator calculates the cumulative sum of up days and down days over the window period and calculates a value that can range from zero to If all of the price action is to the upside, the indicator will approach ; if all of the price action is to the downside, then the indicator will approach zero.
A reading of 50 is considered neutral. Generally speaking, a trader looking to enter on pullbacks would consider going long if the day moving average is above the day and the three-day RSI drops below a certain trigger level, such as 20, which would indicate an oversold position. It is an art and as traders, we need to learn how to use and combine the tools at hand in order to come up with a system that works for us.
To be a great champion you must believe you are the best. If you're not, pretend you are. Muhammad Ali. Partner Center Find a Broker. Bollinger Bands. Cover and go long when the daily closing price crosses below the lower band. Cover and go short when the daily closing price crosses above the upper band. Parabolic SAR. Cover and go long when the daily closing price crosses above ParSAR.
Cover and go short when the daily closing price crosses below ParSAR. Cover and go long when RSI crosses above Cover and go short when RSI crosses below Ichimoku Kinko Hyo.
To customise a BB study, you may modify period, standard deviation and type of moving average. As a general rule, a wide distance between outer bands signals high volatility. Conversely, tight bands suggest that price action is becoming compressed in the vicinity of a periodic average price. Even though Bollinger Bands are trademarked, they are public domain trading indicators. Forex traders frequently implement BBs as a supplemental indicator because they excel in discerning market state.
Pivot Points. Pivot points , or simply pivots, establish areas of support and resistance by examining the periodic highs, lows, and closing values of a security. They are a powerful tool for quantifying normal trading ranges, market direction and abnormal price action as it occurs.
In practice, there are a multitude of ways to calculate pivots. One common method begins with taking the simple average of a periodic high, low and closing value, then applying it to a periodic trading range. The pivot value is calculated via the following formula:.
Upon the pivot being derived, it is then used in developing four levels of support and resistance:. Pivot points are used in a variety of ways, primarily to indicate the presence of a trending or range bound market. A general rule is that when price is above resistance levels, a bullish trend is present; if below support levels, a bearish trend is present.
In the event price falls between support and resistance, tight or range bound conditions are present. Regardless of market state, pivot points may be used to generate buy and sell signals. Pivots are a straightforward means of quickly establishing a set of support and resistance levels. Forex market participants regularly utilise them in breakout, trend and rotational trading strategies. Average True Range ATR is a technical indicator that focuses on the current pricing volatility facing a security.
Akin to Bollinger Bands, ATR places ongoing pricing fluctuations into context by scrutinising periodic trading ranges. The primary element of the ATR indicator is range, which is the distance between a periodic high and low of a security. It is computed as follows:. Range is a flexible calculation in that it may be applied on any period, including intraday, day or multi-day durations.
By definition, TR is the absolute value of the largest measure of the following: Current period high to low Previous close to current high Previous close to current low. The process is mathematically involved; at its core, it is an exponential moving average of select TR values. To keep the ATR current, the exponential moving average is used in favour of a simple moving average.
Fortunately for active forex traders, the ATR indicator may be calculated automatically by the software trading platform. The primary purpose of ATR is to identify market volatility. It is not concerned with the direction of price action, only its momentum. While ATRs do not specifically establish support and resistance levels, they are frequently used to confirm the validity of such price points.
Donchian Channels. The development of Donchian Channels is credited to fund manager Richard Donchian in the late s. Like Bollinger Bands and the ATR, Donchian Channels aim to quantify market volatility through establishing the upper and lower extremes of price action. Due to their usability, Donchian Channels are a favoured indicator among forex traders. They're typically applied automatically via a forex trading platform, but Donchian Channels may be easily computed manually.
The key element of the indicator is period. Once an ideal period is decided upon, the calculation is simple. The following is a set of Donchian Channels for an period duration:. Through focusing on the market behaviour evident between a periodic high and low, Donchian Channels are able to quickly identify normal and abnormal price action.
The appeal of Donchian Channels is simplicity. The indicator is easy to decipher visually on OHLC, line, or candlestick charts and the calculation is intuitive. These two attributes make Donchian Channels an attractive indicator for trend, reversal and breakout traders. Custom Indicators. One of the biggest benefits of trading forex in the modern era is the ability to personalise the market experience.
Advancing technology has brought the creation of custom charts, indicators and strategies online to the retail trader. For droves of forex participants, building custom indicators is a preferred means of technical trading. A custom indicator is conceptualised and crafted by the individual trader. Aside from personal preference, it is subject to no predefined constraints and may be applied in any manner deemed appropriate.
Given the robust functionality of modern forex trading platforms such as Trading Station or MetaTrader 4 MT4 , traders have the freedom to construct technical indicators based on nearly any criteria. The only thing limiting the custom forex indicator and associated forex trading strategies is the trader's imagination.
The Bottom Line. At first, technical trading can seem abstract and intimidating. However, through due diligence, the study of price action and application of forex trading indicators can become second nature. Whether you're a trend, reversal or breakout trader, there are many forex indicators to choose from in the public and private domains.
To sum them up, the best ones are easy to use and will add value to a comprehensive trading strategy. Learn More. It is composed of 30 U. Seven of the 10 largest U. Top 10 U. Familiarity with the wide variety of forex trading strategies may help traders adapt and improve their success rates in ever-changing market conditions.
A futures trading contract is an agreement between a buyer and seller to trade an underlying asset at an agreed upon price on a specified date. Due diligence is important when looking into any asset class. However, doing one's homework may be even more important when it comes to digital currency, as this asset class has been around for far less time than more traditional assets like stocks and bonds and comes with substantial uncertainty. Conducting the proper research on cryptocurrencies may require a would-be investor to explore many areas.
One area in particular that could prove helpful is simply learning the basic crypto terminology. Certain lingo is highly unique to digital currency, making it unlikely that traders would have picked it up when studying other…. Each provides volatility and opportunity to traders. Learn more about them at FXCM. Forex trading is challenging and can present adverse conditions, but it also offers traders access to a large, liquid market with opportunities for gains.
Determining the best forex platform is largely subjective. Although similar in objective, trading and investing are unique disciplines. Duration, frequency and mechanics are key differences separating the approaches. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice.
The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication.
The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.
Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information. Risk Warning: Our service includes products that are traded on margin and carry a risk of losses in excess of your deposited funds.
The products may not be suitable for all investors. Please ensure that you fully understand the risks involved. Stochastics 2. Bollinger Bands 7. Pivot Points 8. Donchian Channels Custom Indicators The Bottom Line. Selecting The Best Indicators For Active Forex Trading Upon adopting a trading approach rooted in technical analysis, the question of which indicator s to use becomes pressing. View Profile. Currencies Global News.
Currencies Economies Global News. Trade the News: View our Economic Calendar. Popular Insights Global Markets. Beginner Trading Forex Strategies. In that case, the Ichimoku Cloud could be one of the best forex indicators for the job. Much like some of the other forex indicators on our list, the Ichimoku Cloud highlights resistance and support levels to forex traders.
However, in contrast, it also evaluates price momentum, subsequently offering forex signals to aid you in the decision-making process. Traders who like a chart packed to the rafters with information flock to this particular indicator. As it offers a wide range of information in one place. The indicator predicts the resistance and support levels of the present and the future. As well as spotting market trends and the direction they may go in. To clear the mist, you will see below a breakdown of the 5 indicators Ichimoku Cloud indicator is made up of:.
The stochastic oscillator is classed as a momentum indicator. It draws a comparison between a precise closing price and a range of prices over a particular time frame. We think the stochastic oscillator is one of the best forex indicators for its strong level of accuracy and simplicity. If the reading is over 80 you are looking at a market that falls into the overbought category.
If the reading is under 20 — this tends to indicate an oversold market. Note, if the trend seems to be really strong, it does not necessarily mean that a market correction is imminent so tread with caution. Once again, this is why you should combine multiple forex indicators together to validate your findings. Nevertheless, the stochastic oscillator offers strong buy and sell signals, which is incredibly useful when trading forex.
The forex indicator also works really well alongside the RSI. Pullbacks often create buying opportunities for traders looking to ride an upward trend. Essentially, the Fibonacci retracement is a drawing tool enabling you to gauge any partial reversals in the markets.
This forex indicator can be used in a variety of different price action phases, achieved by utilizing various retracement levels. Each level measures the number in percentage terms that a market has flipped in between 2 different points. You can use Fibonacci retracement between any two important price points — like a high and a low — forging the levels between the 2 points.
It would be better to create a stop-loss order below the previous price shift low of the upward trend — and higher than the previous price shift high of the downward trend. When there seems to be an upward trend you will be able to utilize the Fibonacci retracement to gauge how much of the last big rally has been let go. All in all, the Fibonacci retracement is one of the best forex indicators for identifying when to enter the market.
The Average Directional Index, or ADX, is another tool used by many forex traders for establishing the potential strength of a particular trend. One of the hardest things about trading forex, or any asset, is correctly predicting the direction of a trend. The positive and negative directional aspects of this tool indicate whether a trend is weak or powerful.
The ADX ranges from 0 to Anything over 25 tends to point towards a stronger ongoing trend. Based on a moving average, and usually spanning over a day timeframe, the ADX concentrates on the strength of a trend — as opposed to its direction. If the green line positive directional is above the red negative directional — it is likely the trend is strong.
You do not have to set the ADX to a day timeframe. As the chart can be adapted to offer more or less in terms of the price range. The standard deviation is a calculation of dispersion. The tool made our list of the 10 best forex indicators largely because when used alongside other indicators. It can really help traders to make better-informed choices.
This particular technical analysis tool shines a light on the price volatility of the market. And we think you should include it in your trading strategy. The mathematical formula of the SD will guide you on entering the market at the correct time — not to mention detecting trend reversals and establishing trade targets. This forex indicator is simple enough for newbies. But powerful for all levels of skill nonetheless.
Please find below a walkthrough of a standard deviation calculation:. As we said, this indicator calculates how wildly prices have strayed from the average. In terms of timeframe settings, many people opt for the default period setting — sitting between extremes. With that said, having a forex indicator giving out too many signals can just complicate matters.
And thus affect the gains you are able to make. If you are feeling a little overwhelmed by the information offered in our best forex indicators guide so far, not to worry. For as many technical analysis tools there are available to help forex traders, there are hundreds for beginners too. They will help you learn how to use forex indicators effectively. We have listed below some inspiration, covering some ways you can educate yourself on the best forex indicators. There is an online course on just about any subject these days.
Forex indicators are no different. You can either try an online course specifically for forex indicators or by performing a simple internet search. Crucially, you will find many courses aimed at learning technical analysis in general. This can help you avoid making the same mistakes as most beginners and diving in with your eyes closed.
Here at Learn 2 Trade, we offer a wide variety of forex courses , including the ultimate trading indicators course — jam-packed with useful information. Another option when it comes to honing in on your skills on forex indicators is to utilize free demo accounts.
For those unaware, most online forex brokers offer clients a free demo account, packed with paper funds. Each demo account mimics real-world market conditions. The best part is, you do not have to risk any of your capital. By which point, you will likely have a much deeper understanding of how to use the best forex indicators to your advantage — as well as having a clear advantage when making trading choices.
We all learn differently. However, if you are a linguistic learner, you will more than likely prefer to learn the best forex indicators by reading a book. There are hundreds of forex trading books available at your fingertips. Whether you prefer to read a traditional paper book, digital, or audiobook — there should be a book that tickles your fancy.
To give you a helping hand we have listed some of the best books we found, all of which cover forex indicators and such:. As you can see, our best forex indicators guide found that not only are there a plethora of forex trading books aimed at beginners. But you can easily find very specific technical analysis based reads. In this guide, we have covered the cream of the crop when it comes to forex indicators. Each tool will make a fine addition to any trading strategy.
Anyone who regularly utilizes forex indicators will tell you that technical analysis can take time to get to grips with. However, once you get the hang of it, the information gained is invaluable. If you are just starting out in the world of trading and are not sure where to begin in learning the best forex indicators, there is help all around you.
Check with your online broker to see if you can access a free demo account. As this can be a good way to get to grips with indicators — in market conditions mirroring real life. If you are a linguistic learner, you can find heaps of educational material online — including books, and our Learn 2 Trade forex courses which are invaluable for newbies. You can also check out our free forex signals group which is considered to be the best forex signals telegram group on the web.
This enables you to learn the ropes from the comfort of your own home. If your trading platform of choice offers demo accounts to clients, you can trade forex with paper money and practice on the best forex indicators for free. Moving Averages is one of the most popular choices for forex trend traders.
There is no black and white answer. Whilst forex indicators cannot make you money per se - learning the best forex indicators can certainly improve your chances of being successful in making the right trading decisions. Yes, you certainly can.
There are heaps of online courses for beginners. Here at Learn 2 Trade, we have many forex courses to choose from - so you can learn from the comfort of your own home. There are heaps of educational books about forex indicators. Although not specifically about indicators, two of the best books about technical analysis in forex trading are 'Technical Analysis of the Financial Markets - by John Murphy' and 'Technical Analysis Explained - by Martin Pring'.
Free Forex Signals Telegram Groups of
How do you use them and more importantly why should you use them? Identifying the best indicators for you is hard work. It depends, mostly, on the kind of trading hat you intend to be doing on the markets. There is a wide variety of Forex trading indicators, as you will see below, and all of them have a specific purpose. The purpose of each indicator changes according to what they are trying to track, but the final results for some of the indicators are pretty similar.
In the end, each indicator is hoping to help the trader by either identifying or predicting trends in the market, in a currency pair or in the attitudes of the market. The sheer number of indicators available on the market might make the final choice a little difficult, but once you know what you are going for, you should not have too much trouble. So, without further ado, let us dive into discussing some of the many indicators available online.
First introduced in the s by George C. Lane, this Forex indicator quickly became the norm for a lot of online Forex brokers. As a result, it helps traders quantify how extreme current price action is relative to how it has traded in the recent past. These indicators make it clear to see, when to expect the next Forex breakout , or when a large slump in prices is going to happen. All by just analyzing the charts. Relative Strength Index has been one of the best Forex Indicators for a long time now.
First introduced to the public by J. Welles Wilder in , it has since become on the most used Forex indicators in the market at this point. A tool which you can find a reference to in any Forex trading book or guide. Chart analysis is probably the most common way a trader analyzes a certain currency pair. Looking at the past may sometimes predict the future while also comparing it to the news articles you find on websites.
Tic, Line, Bar, Point and Figure charts are one of the most common patterns out there. Technical traders are the most common users of this Forex indicator, as they base their entire decision on trends and logic, in which the chart types listed above are arguably the best. Moving average indicators come in different shapes and sizes, and so do the ways of utilizing them. However, despite the large variety, they are still one of the most common Forex indicators for traders.
The style of using them is quite simple and correlates to analyzing them in a certain way. For example, Moving Averages can be used to smooth data in order to help a trader better identify the prevailing trend, or Moving Averages of different time periods can be used in combination to generate trading signals when they cross over one another.
Welles Wilder. The explanation of Bollinger Bands is quite simple. They are just a combination of two lines that are placed at equal volatility dependent distance, both above and below a central moving average line.
The way traders use them is that if the below band is broken, it means that the currency is oversold, which also indicates that traders are now going to buy the pair en-masse, moving it towards the above line, which triggers the opposite reaction to the one I mentioned. In technical analysis, most Forex indicators fall into one of the three categories, as follows:. You have to take the necessary time and learn the meaning of each technical indicator.
This is why many traders use multiple indicators. Taking a closer look at the market will help you succeed as a trader. Here is a method to improve our chart reading skills and learn what FX indicators to use and how to combine them: Best Combination of Technical Indicators — Market Maker Methods.
Additionally, the FX technical indicators can be arranged according to the type of data we extract from them. We can identify four types of indicators to understand the market:. A leading technical indicator gives early warnings and trade signals of where the price is going to move.
These indicators can determine the direction to trade before the new trend has even started. If leading indicators are able to signal trades in advance, before the trend has started, then we all would be extremely rich by now, which is not the case. The downside is that leading indicators are infamous for their many false signals. A novice trader probably would have sold once the RSI entered in overbought territory, which would have caused him to lose money.
With experience, the trader will learn to time their entries and exits with a sense of precision. A lagging technical indicator, as its name suggests, is delayed from the current market price. Usually, the lag is caused by using bigger price data inputs in their calculation. But, a lagging indicator can be extremely helpful in gauging the market trend.
The whole idea of using a lagging indicator for trend determination is that they remove a lot of the market noise that is inherited in the price and gives you a much better idea of the trend. But, the downside is that a lagging indicator will only alert you about a trend after the trend has started. In this case, by using a lagging indicator to trade you miss a good part of the potential profit. The classic moving average crossover system is a good example of how lagging indicators signal the shift in market sentiment after the new trend has started see Forex chart below.
A confirming technical indicator can be extremely useful to validate your price analysis. As its name suggests, confirming indicators are only used to confirm that the reading of price action is correct. Volume indicators are incredibly useful. The way one will use and interpret the OBV readings is quite simple. What drives the trend are buyers and sellers and their aggressiveness and in this regard, the volume should increase when the market moves in an uptrend or in a downtrend.
In the example below, if for whatever reasons, you would conclude that the uptrend will reverse, then using the OBV indicator would have confirmed your analysis. The uptrend was lacking momentum as buyers were not buying this uptrend as indicated by the OBV indicator.
Understanding the differences and the similarities between the three types of technical indicators can help you better read the information they provide and then decide how to trade. The best trading indicator for you will depend on your trading goals. In addition, you can also use functional indicators like for example, the Forex bar timer indicator. The candle timer indicator simply counts down the time until the next candle opens. The FX trend indicator day moving average is considered to be the best trend indicator out there.
For example, if you were looking at a day Moving Average. What are you going to be plotting on your chart is a moving point that looks at the last closing prices and then plots the average price. This way you can eliminate a lot of the noise that is inherited in your price chart and gives you a much simpler view of what is going on in the market. A moving average is really an easy way to identify and provide a little bit of definition to the trend.
Because a moving average can gauge the trend direction they are also called a trending indicator see Forex chart below. The slope of the moving average and where the price is in relationship to the MA will dictate the trend direction. The Forex volume indicators are used as a confirmation tool to confirm the trend. Moreover, the volume indicator is so versatile that it can also be used to confirm a Forex breakout.
Identifying breakouts will allow you to trade ahead of the market. The volume indicators can help us better understand how healthy and secure the trend is. A volume-based indicator will typically be displayed at the bottom of your chart and many of them come in the form of some kind of oscillators.
Most oscillators will have an upper and lower barrier that will usually signal buying and selling pressures. A breakout is probably the most visible and common chart pattern. They also create excellent opportunities for profits. Most trends emerge out of a breakout of consolidation.
The high frequency in which a breakout pattern happens makes the breakout more prone to give false signals. Using a technical indicator to confirm a Forex breakout is vital if you want to distinguish between a false breakout and a genuine breakout. If you want to learn how to use the forex breakout strategy indicators please see some of the best trading tactics used to trade breakouts by professional traders: Breakout Trading Strategy Used by Professional Traders.
What makes a breakout valid is whether or not the FX breakout occurs as a result of smart money activity. So, to assess the breakout we really need to use a volume indicator to measure the buying and selling activity by the professionals. The VWMA is one of the most underrated technical indicators only professional traders use. VWMA looks like a moving average, but instead, it is based on volume. Believe it or not, banks use some of the same forex indicators that are available to the retail crowd.
But since the banks view the forex market in terms of what are the strongest and weakest currencies, they are more inclined to use technical indicators that measure the strength of a trend. There is no such thing as the best technical indicator in Forex. The RSI indicator is designed to measure the momentum while a moving average is designed to smooth out the trend.
Hands down, the most accurate forex indicator is the Fibonacci retracement.
It is known to be the most commonly used forex indicator and showcases an oversold or overbought condition in the market that is temporary. The RSI value of more than 70 shows an overbought market, while a value lower than 30 shows an oversold market. Top 10 Forex Indicators That Every Trader Should Know · 1. Moving Averages · 2. Relative Strength Index · 3. MACD · 4. Bollinger · 5. Stochastic · 6. The data showed that over the past 5-years, the indicator that performed the best on its own was the Ichimoku Kinko Hyo indicator. It generated a total profit.