Let’s admit it, there are many indicators out there that do so many things. Obviously, it’s not possible for anyone to try and test each one of them in order to find out the perfect set of indicators that can smoothly go along with their trading style.
In this post, we’ll highlight some of our favorite forex indicators for 2020 so that you can make an informed decision (read more to see the fine-tuned list of the 8 proven forex indicators for every trader).
1What are Forex Indicators?
Forex indicators are generally used to predict price changes on the currency market. They are estimations that take into account the volume and price of a particular financial instrument. Forex indicators are a useful resource that help traders make decisions about market entry and exit.
Types of Indicators
There are different types of forex indicators available on the market. Based on your individual trading style and goals, you can choose one or more indicators for yourself:
Scalping must not be a new term for you if you’ve been trading for quite some time now. It is basically a trading approach that revolves around generating profits on small price variations.
Scalping is all about market entry and exit which can be done within minutes. If you’re looking to develop a rewarding scalping strategy, the below-listed scalping indicators will give you a head start to the process successfully.
Simple Moving Averages (SMA)
Moving averages are one of the most popular scalping indicators that help traders formulate a very basic trading strategy. It displays the average price over a particular period of time enabling you to detect the pricing trend.
Although these indicators are great for entry techniques, their main disadvantage is that they lag behind the price and you have to use it along with some other indicator to get the best results.
Parabolic SAR Indicator
The Parabolic SAR Indicator is yet another popular moving average indicator that shows the price action trend. In a rising trend, the parabolic SAR chart below-the-price points while in a downward trend it will chart above-the-price points to indicate the retracement factor.
3Day Trading Indicators
Day trading indicators are extremely useful trading tools that must be used in conjunction with a well-developed trading strategy.
The best way to choose day trading indicators for your strategy is to test and run a few of them individually and then in combination and choose the options that best suit your approach.
A Bollinger Band is an effective day trading indicator that offers a limit within which the asset price usually trades. An increase or decrease in the width reflects the price volatility. The narrower the bands are, the lower the volatility and vice versa.
This type of forex indicator is beneficial for identifying when an asset is trading beyond its typical levels and thus usually used as a way to forecast long-term price fluctuations.
RSI also is known as the ‘Relative Strength Index’ is used by forex traders to gauge the momentum, prevalent market conditions and alerts for unfavorable price changes. RSI is usually expressed as a number between 0-100. An asset is said to be ‘overbought’ if it’s reaching at 70 or above while said to be ‘oversold’ if the figure is at or near 30.
Fibonacci Retracement is a forex indicator that generally highlights the extent to which a market will shift against its usual trend. A retracement occurs when there is a sudden and temporary dip popularly known as a ‘pullback’.
Forex traders who believe the market is about to shift generally use this indicator to verify. This is mainly because of the fact that this indicator helps recognize the support and resistance levels. Since traders can easily identify the support and resistance levels by using this indicator, they can decide their entry/exit points.
Trade Alert Indicators
The basic purpose of using trade alerts is to receive timely notification about any particular event. Trade alerts are believed to be the key element of any brokerage firm as it provides the means to the trader to get an alert when a particular event occurs so that the trader can have sufficient time to take action.
On-chart indicators are certainly one of the best examples of the trade alert indicators which generate sound or a pop-up to notify the trader about a specific event. These indicators are great for traders who want to make their alerts on the basis of price changes and not on the static figures.
4Indicators That Help Us Grow As Traders
Unfortunately, it’s not possible to list down two or three best indicators that help you grow as a trader as the type of indicator you must use depends on the type of strategy you’re planning to develop.
The factors of risk tolerance and your individual trading style also play a crucial role. For instance, a trader looking to make huge profits with long-term moves can make use of a trend-following strategy and should pick the indicators accordingly.
In conclusion, forex indicators, especially technical indicators are amazingly beneficial for traders looking to have an in-depth insight into the varying market conditions. It’s important to understand that indicators alone do not generate trading signals.
In fact, you have to explain the exact methodology in which you’ll incorporate your indicators. Recognizing an absolute set of guidelines enables the traders to accurately backtest in order to find out the feasibility of the specific trading strategy. In addition to that, it also assists the traders to comprehend the numerical expectancy of the rules, or how well your designed strategy will perform in the long-term.
This aspect is extremely crucial for technical traders as it lets them evaluate the viability and performance of their trading strategies on a continuous basis and also helps them identify whether or not they should close a position.
Remember – there is no instant formula for success especially when we talk about forex trading. Each trader is unique with different risk-taking capacity, temperament, and personality. It is therefore important that you must test and try a few indicator combinations for your trading strategy to see which particular options are the best for you.