Experienced Forex Traders actively use indicators in their work as hints, recommendations and tips. No professional player who aims to interact with the market for a long time can do without such tools. Indicators help to better approach the current situation and reduce the risk of possible loss of funds. They are also an integral part of technical analysis.
What is technical analysis?
Technical analysis includes the study of candlesticks, graphic models, and other indicators on the charts. You can use it in any market where the source data (prices and volume) are available. By analyzing the charts, you can understand the mood (psychology) of the market and predict exchange rate changes, without looking at the fundamental factors of a particular asset.
As for the scope of application, we can say that tech analysis is widely used by traders in different markets:
- forex market;
- stock market;
- cryptocurrency market;
- commodity market.
And in all these markets, it helps to identify short-term and long-term trends.
The amount of information for technical analysis increases every day. As more and more people try to master the skills of trading and investing in order to create a source of additional or basic income.
The main advantages of technical analysis:
- Trend analytics. One of the most important advantages of tech analysis is that it helps you predict market trends. Just by looking at the charts, you can identify uptrends or downtrends, as well as sideways movements.
- Entry/exit points. The moment of the transaction plays an important role in trading and investing. With the help of technical analysis, you can determine the right time to enter and exit a position, thereby ensuring your profit. For this purpose, strategies based on indicators are also often used.
- Early signal. Price and volume analysis paints a picture of the psychology of investors and traders as to what they are doing. In particular, you can see the movements of market makers and their activities in the market. In the same way, technical analysis gives an early signal of a trend reversal.
- Fast and relatively inexpensive. In currency trading, technical analysis is cheaper than fundamental analysis. And there are many services that provide free charting software. It can also be used for scalping strategies. For example, the formation of patterns based on the 5-minute and hourly timeframes gives faster results compared to the daily chart.
- Lots of information. Technical analysis is useful for short-term trading and long-term investing. With the help of charts, you can find useful information that helps traders and investors make deals. For example, support, resistance, graphical model, market momentum, volatility, and crowd psychology are just some examples of the types of information that can be obtained from competent analytics.
Thanks to the use of high-quality forex indicators, you can greatly facilitate the extraction of such information. However, it is worth considering that not all of them are equally useful and popular among traders. Some of them are used only in very specific strategies, others are more often used in derivatives trading, and there are also those that most market participants regularly work with.
What are indicators and what are they for?
As a rule, the indicators of technical analysis in the Forex market are used by traders who have strategic thinking and are focused on the long-term perspective in their work.
With the help of indicators, you can do the following:
- analyze schedules and find work situations;
- create forecasts of price dynamics in the forex market;
- understand when it is better to invest money, and when-to refrain from rash decisions;
- open trades more accurately without deviating from your trading strategy;
- identify local and global trends.
From a practical point of view, indicators are a kind of calculations that take into account various indicators of a financial instrument. Based on these calculations, the automated system displays lines or marks on the chart. And you, in turn, can better understand the real situation in the market. This will allow you to make competent decisions about what is best to do at this stage – open a position or close it.
The MetaTrader trading terminal has special functions that allow you to integrate Forex indicators on currency charts, or build them in a special window.
What are the indicators?
Forex technical indicators are built only on the basis of trading history. That is, they take into account the volatility, indicators of exchange rates at a particular time, as well as the activity of sellers and buyers. But at the same time, they ignore the news background and fundamental analysis.
All indicators can be divided into three main categories:
- Trend charts allow you to determine the current direction of the chart, as well as to notice the moment of reversal.
- Oscillators are used to determine the strength or weakness of a trend. Or rather, the overbought and oversold nature of the asset, that is, the moment when the trend changes.
- Using psychological indicators, you can understand what the mood of the players involved in the market dynamics is, and on the basis of this, try to predict potential changes in value.
Examples of common technical indicators:
- different types of moving averages;
- Bollinger bands;
- Relative Strength Index (RSI);
- convergence / divergence of moving averages (MACD);
- stochastic oscillator.
If you are new to the concept of indicators, then you should choose a good one A forex broker that provides detailed training materials on technical analysis tools. Only after a detailed study, you should include the indicator in your trading plan. And if you don't understand how a particular tool works, you'd better stop using it.
First of all, high-quality Forex indicators should have the following characteristics::
- Perform fast and accurate calculations, display the correct information for analysis.
- Provide obvious and unambiguous trading signals that do not allow for a possible double perception.
- Be universal (the signals should be identical to the signals of similar indicators) and not lose accuracy.
- If multiple indicators are included in one set, they should complement, not contradict, each other.
- Be able to fine-tune the parameters, and ideally provide access to the program code.
But in any case, you should understand that even the best indicator only helps to calculate the current indicators in the market. And it is your task to make forecasts based on the information received.
In general, indicators are an integral part of forex trading. They offer clear signals that can be easily adapted to your needs and used for trading.
Anyone who wants to determine the future direction of exchange rates can use the indicators to get useful information. And if you also want to use them in your trade, we can offer you to visit our catalog. Here are a lot of proven indicators for MetaTrader, which have already proven their effectiveness in various strategies.