What are Trading Indicators Forex?
The best forex Indicators and moving averages in trading are tools that are often included for FREE in the different broker trading platforms. You will see a trading indicator as a typically reprogrammed overlay on your chart that you can select and view according to the trading strategy you are using.
Each broker will have a different range of preset options of technical analysis trading indicators to use even if they are both offering the same third party platform.
Therefore, an MT4 account with two different brokers would most likely come equipped with different moving average presets and forex indicators based on those that get prioritised by the broker.
It is important to note if you are looking to use a particular chart pattern or trading indicator that you would typically associate with MT4, MT5 etc… that you do not assume that it will be provided by all.
Test Multiple Moving Averages & Trading Indicators Before You Use Them For Real
It is always best to verify directly from reviews or via a demo account if you are planning to trading with moving average strategies or techniques that your trading indicators are there. You can see some information regarding what types of trading indicators are offered in our trading platform reviews.
Selecting which trading indicators to use can be difficult but you can get ahead by testing the different types including various moving averages before choosing the most suited ones on a demo account rather than using real funds.
There are quite a few additional resources that can be used for understanding the various forex indicators but we hope you will find our overview amongst the best trading indicators guides out there.
Moving Averages (MAs) – The Forex Trading Indicators Original
A moving average (MA) is one of the forex trading indicators that is most commonly used in technical analysis. Moving averages help flatten price action and allows you as the user to follow trends based on a series of historical prices.
Simple Moving Average Formula
Simple Moving Average Formula = (Total of all closing prices / Selected Time Period)
To calculate a moving average formula, you can take the total of all the closing prices in a given period, and then divide it by the same selected time period. This will then give you a trend line of past data which can help filter out unrelated anomalies from short term price fluctuations.
You can use moving average trading indicators to help see the direction of trends and help spot support and resistance levels for a statistical advantage. Moving averages can provide useful insight to current trends, and they also form the basis of many other forex indicators used in technical analysis.
Different types of Moving Averages Used In Trading
- Simple moving averages (SMA)
The simple moving average is the most basic form. Historical closing prices are added together and divided by the selected time period. - Exponential moving averages (EMA)
The exponential moving average is more advanced than the Simple Moving Average and helps to correct the equal weighting provided by the SMA. It does this by allowing more weighting and emphasis for the recent prices which will reflect the current market positions. Therefore, it is said that an EMA is a more in-depth technical analysis indicator than the SMA. - Weighted moving averages (WMA)
A Weighted Moving Average is a slightly simpler version of the EMA. The total of weighted values in WMA should add up to 1, or 100%. The weight of each closing date is equally distributed and the highest weighting would be given to the most recent closing price. This essentially puts a priority on more recent performances in a similar fashion to EMA but with an alternative formula. - Smoothed moving averages (SMMA)
The Smoothed Moving Average works in a similar way to the EMA but accounts for a longer time period so gives a more holistic view. SMMA considers all past data and does not remove past data points as new data is added.
Best Forex Indicators For Trading With Technical Analysis
There are many different types of trading indicators and there will not be one that is the outright best for each of you. What is clear, is that you will often need to use multiple indicators simultaneously as part of a well rounded trading strategy.
What you will see on this list of best trading indicators will cover the full range of technical analysis indicator types. Leading, and lagging indicators; momentum, volume and volatility indicators; each can be used in forex, stocks, CFD, or any other type of technical trading.
How you combine these as part of your overall technical analysis, and how well you use them, will likely be a determining factor in your trading results.
Moving Average Convergence Divergence (MACD) TA
The MACD simply indicates where the selected moving averages converge and diverge. This is definitely one of the most popular used and often stated as one of the best forex indicators in TA.
Convergence occurs when moving averages move towards one another.
Conversely, when the moving averages move away from each other, a divergence will be presented.
The MACD Trading Indicator is used by forex traders to visualise the ratio between various EMAs (Exponential Moving Averages). This can enable you to identify possible new trends or interesting momentum to enhance your technical analysis trading and improve outcomes.
The Parabolic SAR Trading Indicator
The Parabolic SAR is another forex trading indicator that works in a similar way to a moving average.
It is used to highlight when prices fluctuate, in what is commonly known as the “stop and reversal system”.
The parabolic SAR indicator appears on a chart as a series of small dots either above or below the asset price and is used to guide you towards potential entry and exit points.
Whilst not as popular as some of the other trading indicators on the list, it could still give you an advantage if you use it well.
The Awesome Oscillator Momentum Indicator
The Awesome Oscillator is a very popular trading indicator from the mind of renowned trading expert Bill Williams.
Whilst the awesome oscillator may be silly sounding to some, it is commonly used as a technical indicator to predict the momentum of the market.
When used properly, this is one of the best momentum indicators and helps you to visualise the different ratios between moving averages over set time frames.
This is a trading indicator that differs from other simple moving averages by basing calculations on the median price, rather than closing or opening prices. The awesome oscillator formula is calculated by finding the difference between a 5 period moving average, and a 34 period moving average.
Bollinger Bands Momentum Indicator
Bollinger Bands is an indicator for trading that can track volatility by charting 2 standard deviations above and below a moving average.
The bands tighten and widen at different points to highlight when there may be a movement in price so it can be a useful action tool.
Visually, Bollinger Bands creates what appears to be a channel that you can use as both a momentum indicator or for entry and exit signals.
Bollinger Bands Trading Strategies and best settings explained.
Trading Volume Indicators
Volume indicators are more of a general term for a range of chart settings. These help you as a trader to visualise the volume of daily trades made. These are shown as vertical bars at the bottom of the chart and indicate interest or lack of interest.
You will commonly find volume indicators in almost all brokers trading charts toolkits. These are especially useful to help in spotting whether a move in either direction is caused by a low or high volume time period.
Volume indicators are often used in conjunction with price to signify positive or negative divergence. That is to say, price increases with low volume may suggest that the downward price movement is weak. Conversely a drop in price with increased volume is also divergence and signifies that the price movement to upside is potentially weak and may reverse.
Alligator Indicator
The Alligator Indicator is another technical analysis tool that is from the mind of Bill Williams. Calculated based on 3 different moving averages, this is a trading indicator that helps you to assess the movement within the market. The 3 lines are set over 5, 8, and 13 period moving averages and staggered.
Many forex traders use this trading indicator to confirm non trending periods, emerging trends spotting entries and exits. As the alligator indicator is a lagging indicator it is typically used in conjunction with other tools.
If you are interesting in learning how to use alligator indicator in forex, or other trading instruments, we have broken out the details for you.
The Relative Strength Index (RSI) Indicator
The Relative Strength Index Indicator is another very popular trading indicator and one of the first that most new traders will look to gain an understanding of.
It is essentially a momentum oscillator that measures the velocity of the price changes and it does this by showing overbought or oversold signals.
Momentum forms a core part of many trading strategies so you will find quite a few variants of RSI within the different forex indicators. If you are only going to use one the RSI indicator might be it.
The Stoch or Stochastic Oscillator Momentum Indicators
The Stoch Oscillator similar to the RSI, measures price momentum.
It operates by comparing current price positions with historical prices. These are then shown as a percentage and indicates potential reversal points with the overbought and oversold signals.
Cross over signals can also signify buy and sell signals.
The Average True Range (ATR) Volatility Indicator
The Average True Range (ATR) measures market volatility of a specified period and helps you to identify markets with higher price fluctuations in comparison to more stable markets.
This helps indicate the best times for you to buy or sell and how much leverage you may wish to use in your trades during varying volatility periods.
The Average Directional Movement Index (ADX)
The Average Directional Movement Index is a trend indicator that can help you to analyse the strength of a trend before there are any price movements in a single direction.
The ADX can also be useful when you are trying to detect volatility within the market.
Fractals Technical Analysis
A Fractal is a lagging indicator made up of a minimum of five bars and is usually bullish or bearish.
Fractals are best used in conjunction with other forex indicators as part of a more complete trading strategy.
Commodity Channel Index
The Commodity Channel Index indicator or CCI indicator as it is commonly known is another oscillator that measures the momentum of price movements.
It can be used to identify cyclical trends, momentum and identifies overbought and oversold levels.
You can see the extensive overview of the commodity channel index technical indicator for the Woodsie CCI also in the link on the title.
Ichimoku Cloud
The Ichimoku Trading System is most often used to identify long term trends, as well as support and resistance levels. Knowing exactly how to use Ichimoku Cloud in your trading is not as difficult as it might first appear.
When the instrument price is sitting above the Ichimoku cloud, this indicates an uptrending market.
If the price is below the cloud, a down trending market is indicated. We have broken down the Ichimoku Cloud, along with some trading strategies in detail, which you can reach by clicking the title above.
Forex Trading Indicator Introduction Complete, What Comes Next?
From this base introduction to some of the more common types of technical indicators forex and CFD traders use, we would not expect you to have a full picture as to the specific differences of each as we will dig into this in each indicators’ detail pages.
You can see that many of the forex trading indicators are designed to show quite similar things but the devil here is in the detail of exactly which specific data points are taken.
There is no toolkit of charts or technical indicators that are going to be suitable for all types of traders so it is important that you test a few of these out on demo accounts before deciding which to build into your strategy more permanently.
Remember, there is no ‘one size fits all’ trading strategy as there is no guaranteed way to profit from every trade. With some time and a tested strategy that you execute time and time again, and appropriate use of stop losses and take profit orders, you can work towards being one of the successful traders that make a good income from your trading. Trading with technical analysis and trading indicators is designed to give you a statistical advantage but there is always a risk of losing money.
If you would like to know more about the details of a specific type of trading chart or indicator, feel free to go through to our learning zone or request a more in depth explanation. If this all seems rather a lot to get your teeth into just now, you can always look at one of the varying signals services options or forex managed accounts that are available but mastery comes with time!