Forex indicators are a great help to traders and are used to predict the direction of the market. They are also called 'technical indicators' and are an essential tool for technical analysis. The choice of the indicator depends on the market, its use in work and the principles of calculation of its values.
Technical indicators are a tool which facilitates technical analysis of the market, an important element of trade strategy creation, providing information about possible market movement on the basis of price history.
Technical Indicator Functions:
1. Determines the presence and direction of the trend;
2. Generates trading signals - entry and exit points in Forex. 3;
3. used as dynamic support and resistance lines.
It is important to clarify that indicators only work if there is a trend movement on the market. Traders, themselves prefer to work with the already proven indicators as well as try new ones. The choice of the indicator depends upon the market, its use in work and the principles of the calculation of its value.
Technical indicators are divided into several types.
Technical Indicator Types
Trend-following indicators. Reflect the trend of price dynamics and are displayed in the chart window.
Popular representatives:
- simple moving average (SMA - simple moving average) calculated by summing up the instrument closing prices for a certain number of single periods and then dividing the sum by the number of periods);
- stochastic oscillator (shows the position of the current price relative to the price history for a certain period in the past);
- RSI (Relative Strength Index).
The simple moving average is an important part of technical indicators and has several varieties.
Types of Moving Averages:
WMA (weighted moving average) - weighted moving average. It uses the principle that more recent data is more important.
EMA (exponential moving average) - exponential moving average. Uses the principle that more recent data is more important. It reacts quickly to price changes.
VMA (variable moving average) - takes into consideration not only the values of the indicators but also their weight.
Oscillators. They are designed for trading on range markets when there is no distinct trend.
Volume and market mood indicators help a trader to understand the prevailing market mood. Usually, it is a ratio of selling to buying.
Popular indicators include:
- SSI Speculative Sentiment Index (SSI Speculative Sentiment Index) determines the mood of price dynamics in the market;
- Volume indicator (shows the ratio of buys/sells).
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