Forex Indicators are useful in identifying and creating patterns from all the information available in the market. Raw data forms the basis for all the inputs and is used to create different scenarios to act upon for trading. Indicators are not predictors but are identifiers of trends in the past and they are used to project possible results into the future. Data on prices are organized in an orderly fashion to identify investment opportunities for the trader.
Out of all the available Forex Indicators there are no right or wrong ones – they are just numbers that can be used with multiple money management strategies to obtain desired results. They serve as a navigation tools in the marketplace. There are several of them available that can assist in evaluating the market. Educate yourself about the function and efficacy of the tools and you can protect yourself from the vagaries of the market.
There are different types of Indicators and they all work differently. One has to use a combination to get an effective read on the market.
These track the tendencies and movements in currency price. The price moves in 3 directions – up, down or sideways. This set of indicators defines the prevailing direction by smoothing out the data over a period of time. It allows you to visualize market trends with the help of charts and graphs. Some of the indicators are – Commodity Selection Index, Moving Averages, Percentage Price Oscillator, Haiken-Ashi candlesticks and HA Trade Zone and most importantly MACD – Moving Average Convergence/Divergence.
These record the speed of price movement over a period of time. They also record the strength and weakness in a trend over a period, momentum is highest at the beginning of the trend and the lowest, at the end. Some of the tools are the Accumulative Swing Index, Commodity Channel Index, Relative Strength Index and Advance Decline Ratio.
These Forex indicators show the magnitude and size of fluctuations in price. There are always high and low periods in volatility and these indicators measure the intensity in the market. Some of the tools are Average True Range, Bollinger Bands and Chandelier Exit.
These reflect the growing interest in the market and the strengthening in a trend. A decrease in volume reflects the disinterest or temporary market consolidation. The indicators here are Acceleration bands and Chaikin Volume.
A cycle in the market is always patterns repeating themselves. The indicators here are the Fibonacci Time Zones, Detrended Price Oscillator, Elliot Waves, Wolfe Waves and Schaff Trend cycles.
Last but not the least, are some of the indicators that were named after Mr. Williams. He was of the belief that traders relied too much on analysis tools too much. He also said that to be successful, the trader needed to understand the market structure to become successful. Some of the tools put forth by Bill Williams which have proven effective are: MT4 or Zone Trade Indicator, Fractals, Alligator Indicator and Gator Oscillator.