Technical Analysis with Best 10 Technical Indicators is Important for Forex Success

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The most important concern of the forex investors is to beat the market and obtain the best return on their investments. This calls for complete and regular analysis of the market. In addition to the economic analysis through economical indicators, another important thing is to carry out technical analysis with the help of technical indicators. There are numerous forex trading technical indicators and the sections below discuss the top 10 of those indicators.

Relative Strength Index

While choosing a currency pair for forex trading, it is important to analyze its past performance. Relative strength index is a technical indicator that measures the current price of a currency pair with its previous prices. A graph is prepared for this index showing the range between 0 and 100. The range above 70 shows rise in price and the area below 30 shows fall in price as compared to the market expectations.

Stochastic Oscillator

It is another useful technical indicator that measures the market momentum or the speed at which the prices of different currency pairs changes. Two important measurements are obtained in the form of %K and %D stochastic lines that represent the risen or fallen market price areas on a chart within the range of 0-100%. If these lines fall below the area of 20%, it indicates trading signs to buy. The lines rising above the area of 80% indicated the trading signs to sell.

Moving Averages

One of the oldest and the most used technical indicator for forex market analysis is moving averages. As the name implies, this indicator measures the average data related to currency price behavior over a fixed period of time. For instance, moving averages for the closing prices of the market for a certain number of days can be calculated. Moving averages help in identifying an existing trend in the market or to start a new one.

Bollinger Bands

Measuring changes in the demand and supply of different currency pairs is important in forex trading. This can be achieved with another important technical indicator called Bollinger bands. The indicator makes use of three bands, one for the moving averages and two for the deviation above and below the middle band. Contracting or widening of the distance between these bands is analyzed to take trading decisions.

Commodity Channel Index

Popular in share markets, apart from forex trading, commodity channel index is a popular technical indicator. The readings for this indicator range between +100 and -100. The indicator is helpful in identifying the cyclic trends like price reversals and price extremes. Deflection from price trends can be measured using this indicator that further helps in identifying overbought and oversold currency levels.

Fibonacci Numbers

The recognition of entry and exit points in forex market can be made with the help of Fibonacci numbers. The Fibonacci series is used as an indicator to measure price position size and to define stop loss levels. The support and resistance levels can be easily identified with the help of this useful indicator. In general, 38.2% retracement signifies the continuation of existing trend, while 61.8% retracements imply the beginning of a new trend.

Average True Range

Originally designed for the commodity markets, average true range is a technical indicator that measures how volatile different currency pairs are. The strength of a trend’s weakness can be measured with the help of this indicator. Higher the value of this indicator, higher is the possibility of the trend to change. High prices, low prices and close prices are the data inputs used in measuring average true range.

Parabolic SAR

Parabolic SAR, where SAR stands for stop and reverse, is an important and an easy-to-implement technical indicator for the currency market analysis. Traders can use this indicator to identify the exit points, but is can’t be used to signal the entry points. Trading positions can be defined with the help of this indicator in case an existing market trend takes turn. On a chart, the patterns of dots representing trading positions form a parabola.

Directional Movement Index

In simple words, directional movement index helps a forex trader to decide whether it is worth entering the market on a particular day or not. This is because measuring this indicator helps to decide which currency trend is trending or non-trending on everyday basis. This further helps in recognizing the buying or selling signals of the forex market.

Mass Index

Finally, the mass index indicator is used to recognize the points that signify the reversal of an ongoing trend in the market. The indicator makes use of daily price movements to make the calculations. On chart, the mass index goes up if the price movements are good and it goes down in the opposite case.

There are many more technical indicators that are of great assistance to the forex traders. They may be difficult to understand for the beginners who can take help from forex experts in using these indicators.