To analyze the direction of the price movement in the Forex industry, there are two kinds of analyses – fundamental and technical analysis. Both are different from each other. Fundamental analysis is suited to long-term traders like position or swing traders, while technical analysis is suited to short-term investors like scalpers or day investors. Here, we will focus on technical analysis.
To analyze the market technically, a trader has to use a few technical indicators that have been developed to analyze the chart, resistance and support levels, entry and exit points, and so on. Among all the analyses, the candlestick chart is widely used by experts.
Top technical indicators that the Forex experts use
1. Stochastic indicator
It is one of the best technical indicators that can help investors figure out the strength of a trend. The traders can quickly recognize the approaching flow of the currency’s price. The value ranges from 0 to 100, consisting of two different lines. The lines are a fast line (%K) and a slow line (%D).
2. Bollinger bands
This band is mainly used to determine the volatility of the market. When the width of the two bands become greater, you have to understand that the platform is highly volatile. If the gap between the band becomes narrower, it indicates that the platform is in a consolidated condition. The bands are created by estimating the standard deviation. Those who are trading bonds in higher time frame can easily improve their trade execution process. So, use a demo account to trade bonds and learn the use of the Bollinger bands.
3. Moving average convergence divergence indicator
This indicator is developed based on a robust theory. Professionals utilize this tool to identify whether there are any possibilities of a new trend or not. In addition to this, the shape of the next movement can also be determined (bearish or bullish). This analyzing tool reveals the relationship between two different lines of the moving average.
4. Ichimoku cloud
This one can isolate a greater probability of trade in the CFD industry. Among the novice traders in Hong Kong, this Ichimoku has gained much popularity because of its friendliness. This tool can reveal more points and can result in more accurate information. However, many rookies think that utilizing this one is quite complicated.
5. Relative strength index
This tool indicates whether a particular asset is overbought or underbought. The value ranges from 0 to 100, and based on this range, you can work out whether there is an overbought or underbought asset. If the value exceeds 70, the currency is overbought, and if the value is less than 20, the asset is underbought.
6. Fibonacci retracement
When the graph keeps moving continuously in a particular direction, it is called a continuation. But sometimes, the chart changes its movement and then again continues its journey to the original direction. This sudden change in the movement is called a Fibonacci retracement. Some traders focus on this retracement to make their trades.
7. Average true range
This tool will reveal the volatility of the trading platform. Since market volatility is the most prevailing issue these days, people are using this software for analyzing the chart frequently. Day traders use this tool the most, and when they do, they utilize it as the trailing stop.
8. Average directional index
It is a type of technical oscillator. This indicator is mainly used when the market is in a ranging condition or is about to begin another trend. The value of this indicator fluctuates between 0 and 100. If the value is below 20, then it will indicate that there is a weaker flow. If the value exceeds 50, it will suggest that the flow is relatively strong.
These are the eight most popular types of Forex indicators that professionals use in their trading. If rookies wants to use these analytical tools, they should practice with them in the demo account to understand then more fully.