If you have just learned technical analysis, you may be overwhelmed by all the indicators on which you need to base your predictions. You may not be able to use all the indicators and you will be able to make a decision in time, so here are the top 5 technical indicators used by forex trading experts.
If you are a beginner, you may want to start with the simplest indicator. Moving average, although simple, is one of the preferred technical indicators of experts. Using moving averages, you compare the averages of charts that span two different ranges. For example, you can compare a 7-day average with a 30-day average. Look at the way the two averages cross. You can predict a bear market if the crossover comes from the top down, and you can predict a bull market if the crossover comes from the bottom up.
This technical indicator works on the belief that the market value can increase or decrease depending on two standard deviations. Each of the standard deviations is plotted on both sides of the moving price chart. So basically, Bollinger bands are used to determine whether a price is considered high or low based on price history.
Relative strength index (RSI)
The relative strength index, or RSI, is the relative strength of the price of a security relative to past prices of the same security. RSI is used to determine whether a security is overbought or resold. Over a period of usually 14 days, you will observe bears and bulls price changes. You need to divide the sum of the bull shops by the sum of the bear shops. The answer is an index from 0 to 100. If the number is greater than 70, then the security is overbought (bearish). Similarly, if the number is below 30, then the security is oversold (bullish).
The stochastic indicator is a good tool for determining whether a market is strong or weak. This technical indicator shows that if the price rises during a trading day, it is more likely to end up close to the maximum price for that day. Accordingly, if the price falls during a trading day, it is more likely to end up close to the minimum price for that day. This indicator is best used as a time tool and can show trend changes on which you can base your investment. The stochastic indicator is best used in conjunction with RSI.
Moving Average Convergence Divergence (MACD)
MACD is a pulse meter that can be calculated by finding the difference between two exponential moving averages. MACD closely follows trends. The MACD differs from moving averages in that exponential moving averages (EMAs) give much more weight to newer prices than the rest of the prices plotted on the chart.
If you look further, you will find many other useful indicators. However, the ones we have listed here, the experts have tried and tested the most. By using or combining any of these technical indicators, you can get into the best trading move.
The key forex technical indicators used by experienced traders can be discovered by visiting the Technical Analysis Tips website.