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Forex Trading Indicators

Forex Trading Indicators

There are numerous Forex trading indicators here, we will discuss some of our favorites and how you can incorporate them in your Forex trading strategy and enjoy Forex trading success.

There are a vast number of Forex trading indicators to choose from and many traders think that the more they put into their trading system, the more successful it's likely to be but this is simply not true! If you add to many Forex trading indicators your system, will be to complex and will have to many elements to break. In Forex trading simple strategies work best, as they are more robust than complex ones, with fewer elements to break.

While there are numerous indicators you can use, I have picked 6 of the best and have given you a brief introduction to them below:

The Bollinger Band

The Bollinger band is an essential tool for Forex traders in terms of it gives you an indication of standard deviation of price or volatility. If you want to be a successful Forex trader, you need to understand volatility and how it affects Forex price movement and this indicator does just that.

Simple Moving Averages

A simple moving average is calculated by adding the closing price of the currency for a number of time periods and then dividing this total by the number of time periods. Short-term averages respond quickly to changes in the price of the underlying, while long-term averages are of course slower to react. Moving averages smooth the trend and can be useful in Indicating areas of value and areas support and resistance. You should never use moving averages to time a move, they need to be used with momentum indicators which we will discuss below...

The Stochastic

The stochastic oscillator was presented by George Lane in 1950s and remains one of the most popular indicators to improve market timing. The basic premise is as follows:During periods of price decreases, daily closes tend to accumulate near the extreme lows of the day. Periods of price increases tend to show closes accumulating near the extreme highs of the day. The stochastic study is an oscillator designed to indicate oversold and overbought market conditions. This indicator is an excellent for getting better market timing with your trading signals and for us, its the ultimate momentum indicator.

Relative Strength Index (RSI)

Developed by J. Welles Wilder the Relative Strength Index (RSI) is an extremely popular momentum oscillator. The RSI compares the magnitude of a currencies recent gains to the magnitude of its recent losses and turns that information into a number that ranges from 0 to 100. The best way to use the RSI is to watch the RSI diverge from the prevailing trend to give advance waring of a trend change or a profit taking opportunity in an existing trend.

The MACD Indicator

The MACD, was developed by George Appel and is a trend-following momentum indicator that shows the relationship between two key moving averages of prices and is a popular indicators used by many currency traders.The MACD uses moving averages which are lagging indicators but they are turned into a momentum indicator by subtracting the longer moving average from the shorter term moving average. This results in a line which oscillates above and below zero, with no upward or downward limits. The MACD is typically used to spot overbought and oversold situations, and for entering trading signals and is considered very effective in volatile markets.

If you look in the Forex Trading Software Section of this site, you will see a program you can use to test any combination of indicators and see how they perform. This enables you to test strategies over years of historical data in a matter of minutes, check it out and you can start building and testing strategies which can lead you to Forex trading success.