There is an abundance of forex indicators now available with the popular and proprietary trading platforms, which leaves to traders the task to decide on what is the right mix for optimal decision-making. This comprehensive short guide with some of the popular forex indicators will walk beginners through four of the top indicators that are extremely popular among experienced FX traders.
# Daily 200 SMA
Understanding the market context and the dominant direction should be one of the first steps in preparing for the trading day. One of the main indicators used to assess that view is the daily 200 simple moving average. This is considered to be a dividing line between bullish and bearish territory, with breakouts above/below it usually generating impulsive market moves.
For FX traders, this should be a must-have indicator on the trading strategy, due to its proven track-record and efficiency. The daily 200 SMA is a floating support/resistance area and many institutional players are keeping a close eye on it.
# Fibonacci Retracement Levels
Markets don’t move in a straight line and in their pursuit to get into a trade at attractive valuations, traders need to find a way to take advantage of retracement moves. Fibonacci retracement levels continue to be heavily used, also because historically, currency pairs are reacting to these lines. MetaTrader 4, commonly known as MT4 and any other trading platform support Fib levels, which means using them shouldn’t be a problem even for beginners.
Depending on the impulsiveness of the market, the most important Fib levels are 0.236, 0.382, or 0.5. Traders should keep in mind that Fibonacci levels have increased efficiency when they overlap with other support/resistance levels because that creates an accumulation of new market orders.
The COVID-19 crisis brought volatility back to the FX market according to Refinitiv and because of that, traders have a hard time finding optimal entries and spotting turning points in the market. Any significant market move is bound to end at some point and one of the best ways to anticipate such developments is via oscillators.
Relative Strength Index (RSI) is still the most used oscillator to spot overbought and oversold conditions. However, traders need to be aware that it produces a lot of fake signals when used on smaller time frames (1 minute, 3 minutes, 5 minutes, etc.) which is why it would be better to rely on RSI when looking at the long-term market structure via higher time frames.
Introduced by market technician J. Welles Wilder Jr., Average True Range or ATR is a technical analysis indicator used to measure market volatility by decomposing the entire range of an asset price for any given period. Although it was originally developed for commodities, it is currently being used even by FX traders, because it has the ability to help them with timing the right exit method. As with all the other three indicators, ATR is available with all the popular trading platforms in the market, which is why any trader can test it and learn how to take advantage of it.