Forex indicators

Posted on July 15th, 2008 by admin, under forex indicators.

There is a plenty of Forex technical indicators which enable to give you opportunity to estimate condition of market and to make the most exact forecast of the further movement of the prices. All these Forex indicators can be divided into three groups:

1. Trend following indicators of trends or indicators are effective in the presence of a pronounced trend, but give dangerous signals when the market stands. These include indicators such as, for example, Moving Average, MACD (convergence / divergence of moving averages), ADX index etc. These indicators are moving when the trend has changed.
2. Oscillators or oscillators show a turning point, but give premature and unsafe signals when the market began its movement. This group includes Stohastic oscillator, Momentum, RSI (relative strength index), Wm% R (Williams % R), etc. Oscillators change frequently before prices.
3. Miscellaneous indicators or other indicators give an opportunity to evaluate the psychological condition and mood of the market. Among them are New High-New Low (index of new maxima and minima), Put-Call Ratio (the ratio of supply and demand), Bullish Consensus and others may be synchronous or faster indicators. Please note that this group of Forex indicators used mostly with the sale of futures and options.3.

In the given section we’ll give the most widespread and, in our opinion, convenient in application indicators - those technical Forex indicators on which it is necessary to pay special attention at creation of trading system. We shall not give formulas for calculation of indicators as we believe, that the main thing is to understanding of about what speaks the indicator and as correlates with by. The description of mathematical calculations can be looked in help system of a trading platform.

Also we wish to notice, that here we give the description of classical application of indicators which is not recommendations to opening positions. Before applying this or that Forex indicator we recommend to study its behaviour in relation to the price independently, try to change parameters and to pick up values that are optimal in your opinion.

Moving Average

This Forex indicator always follows changes of the market, but does not advance it. МА does not predict changes of the price but only eacts to it, i.e. signals about the beginning of the new tendency only after it has already appeared. A signal to purchase is closing the price above line МА, in that case when МА grows. A signal to sale is МА falling and closing of the price below this line.

Usage of moving averages is effectively during ascending or descending trends, but during a turn of a trend movings are late, and during lateral give many false signals.

MACD (a convergence/divergence of sliding averages).

The МА Forex indicator defines a trend by smoothing fluctuations of the prices. The method of a convergence-divergence consists not of one sliding, and from three exponentional МА. МАСD gives the trader three types of signals: crossing by faster line slower (from down to top - purchase, from top to down - sale); confirmation of a trend when gives new maxima and minima simultaneously with the prices; formation of divergences.

ADX - Average Directional Movement Index

The given Forex indicator consists of three lines: ADX line itself which shows presence and force of a trend, and also + /-DM lines which show direction of trend. If ADX it is small, the trend is weak, and it is not necessary to follow it. When ADX decreases, it means, that the tendency weakens, when ADX rises, it shows that new trend appears. In this case it is necessary to pay attention to + /-DM lines, for definition of a direction of movement.

Bollinger Bands

This Forex indicator is intended for research of price movement channels. When the price reaches to bottom Bollinger border, it is possible to consider purchase, when to top - sale. Often Bollinger lines coincide with lines of support and resistance accordingly. It is not necessary to accept decisions at strong breakdown by a strip. The analysis of Bollinger strips is well combined with the sliding average analysis. As a rule, on growing the market when the price spends more time near the top Bollinger line, its bottom level finds the support near average. At the bear trend the price fluctuates from bottom Bollinger line up to an average, being a kind of resistance line.

Momentum and Rate Of Change

These Forex indicators trace acceleration of a trend, growth or reduction in speed of its movement. The zero line (a 100 line for Rate Of Change) of oscillator represents area of low risk for opening long positions in the growing market and short - on falling.

RSI - Relative Strength Index

Measures relative strength of the market under the prices of closing. It is the warning or synchronous indicator, it never lates. Values of RSI fluctuates between 0 and 100. When RSI is above 70 or below 30 it shows that there is a condition of extra-bying and extra-selling accordingly. Signals arise when RSI had crossed alarm lines. If you work with short-term transactions, it is possible to reduce the period of calculation, as the more lower is period, the more sensitive is the Forex indicator.

Stochastic

As at stochastic calculation not only the prices of closing are considered, but also maximal, minimal prices, many traders and analysts prefer it instead of RSI. There are two variants stochastic - fast and slow. Fast is very sensitive to turns of the market, but gives many splashes. Slow - eliminates market noise better and gives less splashes, that is why it is very popular. The given Forex indicator gives three types of signals: crossing of lines of levels (20 and 80), a direction of lines and divergence. These signals work well in a corridor of prices, but works bad in a trend. On an ascending trend oscillator quickly enters into the area of extra-buy and gives a signal on sale, and prices continue to grow. At a descending trend - on the contrary. It is recommended to use stochastic on the weekly and monthly graph for forecasting the long-term tendency, and during short-term strategy use day time schedules.

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