Trading on the Forex market is not easy. When using indicators, it helps one being on the right side of things, and it should be known that trading is not a straight line, and other elements affect the market as well.
When it comes to technical analysis, traders can use either technical indicators or technical trading strategies. Technical indicators are the ones chosen by retail traders because most of this trader is looking for profit from the quick swings the market makes. Despite this, some traders are still able to consistently make profitable returns. It was a result of the successful use of forex trend indicators. The existence of the ‘best Forex indicators’ implies that the Forex market is not a random walk, as some economic theories resist. The flaws of human beings mean that markets do not always behave rationally.
What Are forex Trend Indicators?
They are designed to identify and follow the trend of a currency pair. Traders earn more on trending markets. That’s why you must differentiate between circumstances when a currency pair is trending and when prices are consolidating. The primary purpose of forex trend indicators is not to find the exact entry/exit points, but to show the direction of trade for selling or buying.
In this article, we’ll briefly discuss the top technical trend indicators such as simple moving averages, Moving Average Convergence Divergence, Relative Strength Index, and On Balance Volume.
The best Indicators All Forex Traders Should know
- Simple Moving Average (SMA)
Simple Moving averages is the simplest of the trend indicators. It uses a regular average price for a set number of past days hours, months, years, etc. Every point on a moving average line is the average for that day, which brings a smooth representation of a price’s movement. Moving averages is used by traders to identify trends, points of resistance, and crossovers between different moving average lines, among many other techniques.
Figure 1.1 A simple moving average trend
- Moving Average Convergence Divergence (MACD)
The moving average convergence divergence is an oscillating indicator that fluctuates around zero and is a measure of both trend and momentum. The step involved in calculating MACD is the same logic used in the simple moving average. Still, it includes additional features to give a better picture of a more recent moving average compared to an older one.
Figure 1.2 Moving average convergence divergence
- On Balance Volume (OBV)
on balance volume indicator used for measuring the volume of a trend for security. Balance Volume is an essential complementary measure that is used to confirm price trends by determining whether they are occurring on a high or a low number of trades.
Figure 1.3 On balance volume
- Relative Strength Index (RSI)
It is an oscillator that tries to measure excess in a trending stock. For example, when a stock reaches 80 out of 100 on the RSI, it is considered to be ‘overbought’ and likely due for a correction. Likewise, when the stock is below 30 on the RSI, it’s considered to be oversold.
Figure 1.4 Relative strength index
The best indicator for Forex trading highlighted will be the one that works best for you. This technique is used by millions of other traders; therefore, if you use it, you will be able to swim with the current and never suffer from financial losses.