Technical analysis is a vital part of an overall Forex market analysis. However, it might be challenging to analyze the market without the help of technical indicators. Today, we discuss the Best Forex Indicators For Beginners and how to use them.
AtoZForex – Forex traders usually use three types of analysis in their trading routine. The choice of the analysis is depending on a number of factors – a personality of the trader, lifestyle, preferences, trading style and much more. Based on these factors, traders normally choose between fundamental, technical and sentiment analysis. Nevertheless, in order to maximize the value of your investment and get the best possible trading experience, you should make use of all three analyses.
Nevertheless, in order to maximize the value of your investment and get the best possible trading experience, you should make use of all three types of analysis.
Best Forex Indicators For Beginners
However, today we will focus our attention only on the technical analysis. Where fundamental and sentiment analyses are easier to proceed with, the technical analysis might be a challenge for a Forex beginner. Moreover, Forex newcomers sometimes go to extremes – they either use no indicator whatsoever or too much of them. Therefore, I will go through the best three indicators that you can use if you are just starting your Forex career.
Relative Strength Index – RSI
Relative Strength Index refers to a basic indicator that is used to understand whether a currency pair is oversold or overbought. The conditions of reading are scaled from 0 to 100.
How to use Relative Strength Index?
If a reading on indicator shows above 70 would, then you can conclude that the price is overbought. On the contrary, a reading below 30 would signal that the price is oversold.
This indicator is very similar to the Stochastic, and sometimes it acts as an additional confirmation to the matter of currency pair’ pricing.
The Stochastic indicator will help you determine the further direction of price. Just as the RSI, this indicator will tell you whether the currency pair price is overbought or oversold. Also, the readings on Stochastic are emerging from 0 to 100.
How to use Stochastic?
With Stochastic indicator, a reading above 80 indicates that the price of a currency pair is overbought. On the other hand, a reading below 20 implies that the price is oversold.
In order to make full use of this indicator, you would want to look for the overbought and oversold environment in the market. In case the indicator scale shows overbought, you will need to go short as the price will most likely decrease.
Even though RSI and Stochastic are very similar, they have different configurations. You can use it in your favor by comparing the results of both and analyzing them.
Moving Average is probably the simplest technical indicator for Forex Beginners. This indicator helps you understand the trend much easier, irrespective of the fact whether it is downtrend, uptrend or ranging. It basically evens out the price action.
How to use the Moving average indicator?
Moving Average allows you to organize the settings of the indicator to modify the smoothness of the line. The smoother the line – the slower will be the reaction of it to the price action. Thus, it will be steadier.
We can differentiate between two types of moving averages: simple moving averages (SMA), and exponential moving average (EMA). SMAs are normally much smoother. Yet, EMAs have more focus on the current price action, thus being a more up-to-date indicator.
While starting to use the Moving Average, you will need to test it at first. You will need to modify the settings for each currency pair in order to adjust to the volatility and price action of each market.
How to add technical indicators to your trading?
Now, when you are equipped with the knowledge about three Best Forex Indicators For Beginners, it is time to start using them for your technical analysis. First things come first – for the start, you will need to have a platform just for your technical analysis. One of such standard platforms – MetaTrader, will do the work.
Once you have the platform, you will just need to add the necessary indicators to your chart and adjust settings as per your trading routine.
In the end, I want to highlight that you should never rely your trade just on these indicators. Even though they are extremely helpful, when it comes to the analysis of the market, they are not perfect. Therefore, you should use them just as an additional confirmation for your trades.
Do you use any of these Best Forex Indicators For Beginners? Think we missed something? Let us know in the comments section below.