Forex indicators are helpful in supporting trading decisions, but it is a point of debate whether they can be solely relied upon without any fundamental analysis.
What are trading indicators?
Trading indicators (also called signals, forex signals or trading signals) are a series of mathematical calculations, drawn as trendlines, or in other graphical representations. Just like forex patterns these indicators are used in the technical analysis of forex trading.
Indicators vary from trader to trader: some only analyze technical details, while others also use fundamentals. Some indicators are useful as triggers to open or close a position (like the RSI discussed below), while others are better aimed at sizing positions (think of volatility measures like standard deviation or the Average True Range, or ATR).
What are some major indicators?
RSI – or Relative Strength Index – is a so-called oscillator, whose readings run a scale from 0 to 100. A value above 70 is considered an indication of the product being overbought with a reversal to the downside likely, whereas a value of 30 or lower is a sign of being oversold and that a turnaround to the upside is likely in the cards.
MACD – or Moving Average Convergence Divergence – is aimed at trend following. It calculates the relationship between two moving averages. A trader might anticipate a certain price movement based on how these averages cross each other.
How many forex indicators are there?
Well, plenty. It depends on the broker platform, but there are at least 30 different indicators on MetaTrader platforms. On more advanced platforms, this number can go into the hundreds or even higher.