Indicators are the tools that help the traders identify the new and continuously changing trends in the forex market. Though traders use many sort of indicators to find out about the currency market status, but here we will be listing the most common indicators used by the pros as well as the novice ones in the currency market.
1. Momentum Indicator
The momentum indicator is sort of unbounded oscillator, it can technically go as high or as low as it wants – there is no any minimum and maximum value. The momentum indicator is the leading indicator, i.e. it gives signals before the confirmation of any price action. This indicator measures the strength or weakness of a trend.
2. Support/Resistance Indicator
Another type of indicators commonly used in identifying the trend of the currency market is Support/Resistance Indicators. It gives you a description of the price levels at which the price of the currency market tries to reverse. As for example, if in case of upwards movement of the price, prices may try to reverse downward at resistance levels. In case of support levels, the opposite is true.
3. Trend indicators
The traders use trend indicators to identify the perseverance of price movement in one direction over time. The occurrence of trends takes place in three ways: – Either Upwards, Downwards or Sideward. This indicator helps you trade with the trend, as the name suggests. The trend indicators smooth out short-term price fluctuations enabling a trader to focus on trading in the overall direction of where market prices are moving.
4. Bollinger Band
By using the Bollinger band, you’ll be able to know the volatility of a currency from the norm. Spotting overbought oversold levels is easy if you are using Bollinger band, because as volatility rises and trade into them.
5. Stochastic Indicator
If you are planning for better trade, then you will definitely use this as this indicator will assist you in better timing of your currency market and executing the trading signals. By the use of stochastic indicator, you are able to confirm any move within a trend and can take contrary trades.
6. Volatility Indicators
Volatility indicators help you describe the magnitude of fluctuations of price of the currency market. Different from that of the trend indicators, volatility indicators don’t take into consideration the directional movement of market prices. I.e. you can have highly volatile fluctuations no matter whatever the direction of the trend is.
7. Leading Indicator
Leading indicator is the type that will show you when to buy your currencies before any occurrence of new trend. Let’s compare it with that of an antivirus program in a computer that detects the viruses even before entering your desktop. But to its pity, this indicator won’t show you the most accurate signals. It follows the changes in the market and identifies the repetitive patterns. If you are using leading indicators, you might receive fake signals ultimately leading you to the wrong direction.
8. Lagging Indicator
This indicator shows you if the trend has already started or not. You can trust this indicator when it comes in pointing out exactly when the price has already been changed and a new trend is visible.
