Technical analysis of Foreign Exchange markets is impossible without such instruments as Forex technical indicators. They help to significantly increase the effectiveness of thr research and simultaneously reduce the time spent. It is important to choose the right instrument according to the developed trading strategy and be able to apply it.
Main Categories for Classification of Forex Indicators
- Trend Indicators: As it can be understood from the name itself, the indicators allow defining the main tendency that is currently present on the Forex market. They show trend direction, its strength and some other parameters. This category of Forex indicators can be applied practically in any strategy that implies opening deals along the trend. A good example of trend indicator is the Average Directional Movement Index (ADX).
- Oscillators: These indicators allow drawing the picture of current state of the market. The indicators are usually displayed in a separate window below the currency pair chart. The most prominent representative of this category is the Stochastic Oscillator. It is difficult to find a trader that has not heard of this indicator. The task of Stochastic is to determine when a trend enters into overbought or oversold areas. Its implementation is particularly effective on stock or commodity exchanges. However, it is of high efficiency on Forex market as well.
- Bill Williams Indicators: These indicators are based on the indicator trading strategies of legendary trader Bill Williams. Being well informed on market psychology he developed his own trading method, based on simultaneous application of rational approach to market analysis alongside with irrational logic of chaos.
- Volume Indicator: One of the main indicators of market deals is the volume of deals. The volume of transactions characterizes the activity of market participants, its strength and intensity. The peculiarity of the volume indicator is that it is always a bit ahead of the price. On the Forex market, as a rule, there is no opportunity to show the direct volume of transactions, but "Volume" indicator has been constructed to reflect the number of price changes (ticks) during one bar. This indicator shows the activity of price changes, and it is believed that this activity effectively correlates with the real volume of transactions.
Forex Indicators are the best assistance for a trader that allow for more effective trading even for newcomer on foreign exchange market.
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