Forex trading requires an in-depth understanding of the market trend. The trader must understand the direction of the market and be adequately targeted. The point is to know exactly when to trade or take the right position.
List of the top 5 indicators
Although it is difficult to say that one indicator is better than others, we chose them after testing them, and also based on the fact that many traders trust them.
1. The Relative Strength Index (RSI)
The Relative Strength Index was developed by J. Welles Wilder to assess the speed and change in price movements. RSI, which functions as a pulse oscillator, is popular with traders due to its relative simplicity of interpretation.
RSI is drawn on a different scale; it consists of a line calibrated from 0-100, which contrasts with the strength of recent gains and recent stocks. RSI is useful in identifying overbought and oversold conditions. It also certifies other technical indicators and warns traders of possible reversals by deviating from price trends.
Calculating RSI involves multiple steps of calculating relative strength by creating a contrast between gains and losses. This is achieved by observing the following:
Calculate average profit: total profit / period
Calculate the average loss: total loss / period
Calculate the relative strength (RS): to obtain the relative strength; the average profit is divided by the average loss; Average profit / average loss.
Therefore RSI = [100 – (100 / (1 + RS)]
2. Moving Average Convergence Divergence (MACD)
Convergence of a moving average Divergence is an indicator of the momentum that follows the trend and shows the correlation connecting two moving averages of the price of the security. MACD seems quite difficult to grasp by inexperienced traders who still do not understand the great features it offers.
MACD is an example of a trend indicator; it consists of three components, namely; fast line, slow line and histogram. Its main advantage is its ability to reverse the trend. It can also be used to identify the top and bottom lines of trends, which helps the trader reduce the risk of his investment.
3. Bollinger Bands
Bollinger Bands is a volatility indicator invented by financial analyst John Bollinger. This is one of the best indicators of Forex trading from the several methods of channel variability available to Forex traders.
Bollinger Bands uses two parameters:
1. The duration of the moving average is usually 20 days.
2. The number of 2 standard deviations that you want the bar to be placed away from the moving average when trading stocks.
Used in combination with an oscillator to generate buy or sell signals
If Bollinger Bands are used in conjunction with an oscillator as a relative strength index (RSI), it generates buy and sell signals when Bollinger Bands means an overbought / oversold market and the oscillator means a mismatch.
When automatically tagged by a trading platform, Bollinger strips are very easy to use and can add another scope for trader parcel analysis.
4. Stochastic Oscillator
George Lane, a marketing technician, developed the Stochastic oscillator to identify when security was bought or resold. To achieve this, it equates the periodic closing price of the security to its price range for a certain period.
The principle used by the stochastic oscillator is the probabilities required for random distribution. The stochastic oscillator is symbolized by% K; it is used to compare the evolving price action with a relative average. The derivation formula is given below:
% K = (closing price – low range) / (high range – low range)) * 100.
The stochastic oscillator is an indicator that does not follow the price or volume, but shows the speed or inertia of the price. As a result, it helps to predict a change in the direction of the price.
The Stochastic Oscillator is a popular indicator among traders to identify bullish or bearish market trends.
5. Average Directional Index (ADX)
However, the ADX, which can be used as a single indicator to measure the strength of a trend, is also a component of the directional motion system developed by J. Welles Wilder. The mean direction index (ADX) is used to decide when the price is strongly in trend. When you trade in a strong trend, you reduce the risk and increase the prospect of making a profit.
ADX identifies trending conditions in addition to helping the trader find the strongest trading trends. Its ability to measure the strength of the trend is a great advantage for traders. ADX also recognizes coverage conditions; thus the trader does not remain
Junior Trader Mert Mustafa