Indicators are technical analysis tools that help you in understanding the movement of Forex prices. The indicators are usually created using a given formula thus they are accurate in their working. There are many types of indicators in the market. Some of the notable ones are:
Bollinger Bands
These bands are created by calculating the average volatility of a given Forex. They are plotted on the Forex price chart as an upper and lower price band which represents the highs and lows of the average volatility range. You should use the indicators to buy Forex when the price has fallen to the lower band. You should also use them to sell your Forex when the price rises to the upper band.
Oscillator
These are usually a group of indicators and they include: stochastic, relative strength indicators (RSI) and commodity channel index (CCI). Stochastic indicators are based on systematic higher and lower price closing, RSI are formulated based on relative price strength while CCI gets its results after comparing its price to that of the previous price fluctuations.
You can use any indicator that you want and all you need to do is to choose the one that pleases you the most.
Of the three oscillator indicators, stochastic indicator is the most popular. A stochastic is a line that is plotted on a graph and measures between 0 and 100. The line aids in revealing whether a given stock is overbought or oversold.
If you are a short-term trader you should use the indicator to buy a given Forex when the stochastic line moves below 20 thus indicating that the stock is oversold. You should also use the indicator to sell your stock when the stochastic moves above 80 indicating that the price is overbought.
MACD
The moving average convergence-divergence (MACD) indicator is an indicator that is usually plotted on the bottom of a price chart. The indicator is usually drawn as two separate moving average lines. Just like other indicators, this indicator provides you with buy and sell signals.
When the 12-day average converges and moves over the 26-day average, a buy signal is created and you should buy the Forex that you are interested in. On the other hand if the 12-day average moves over the top of the 26-day average, a sell signal is created and you should sell your Forex.
Conclusion
These are some of the indicators that you can use in Forex trade. To be on the safe side always try to understand everything about the indicators before putting them into work.
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