The Indicators of Technical Analysis in Forex
In order to be able to earn on the difference in exchange rates, it is necessary to analyze a huge amount of information, anticipating the market fluctuations and adapting to them. The technical indicators are regarded as a trader’s assistant in this matter. They allow us to understand the processes occurring in the market and to make the correct and effective prediction of the currency pair behavior for a certain length of time. The indicators are also useful when dealing with other financial instruments beyond the Forex market, such as transactions with shares and other CFD contracts.
The market indicators are the basis for a decision taken by the trader for a long or short position. According to the basics of technical analysis, it is known that the market may be found in one of two states: trend or sideways. When the market has a trend, you will see the price movement pointing to a defined direction: up or down. When the market moves in sideways, it means it has no trend, or it simply has a sideways trend, so it simply goes horizontally. On this basis, the indicators in the Forex conventionally are divided into two types:
– The first are the trend indicators – those that indicate the presence of direction, like upward trend or downward trend.
– The second type of indicators is the oscillators, which have a high level of efficiency in the absence of a pronounced trend.
On the Forex, we distinguish both objective and subjective indicators. The latest ones indicate the sentiment of the market participants, which is a psychological aspect. Accordingly, the market can be bearish or bullish. Bearish describes the state when there are more traders who prefer to sell, so it is associated with the downtrend, while bullish describes the state when the buyers are predominant, so there is an uptrend.
The modern trading platforms such as MetaTrader 4, cTrader, and many others, can quite comfortably deal with market indicators. These terminals are equipped with a separate box with indicators, designed for being applied to the price chart by using different settings, depending on the situation.
For example, the following options can be set at the time of technical forex indicators:
– Color elements
– Line width
– Size of the characters used
– Periods, levels and other settings
Here are some examples of trend indicators: Moving Averages (Exponential or Simple), Bollinger Bands, Parabolic SAR, ADX, etc.
Now, here are some examples of oscillators, which also indicate the overbought and oversold state: Stochastic, MACD, RSI, Momentum, etc.
The Forex indicators are indispensable for making correct decisions during the trading process.