Most Accurate FOREX Indicator
A Forex indicator is a technical analysis tool that helps Forex traders analyze currency price behavior and help predict future price direction. Today's Forex chart software offers many different indicators that you can choose to overlay on your price chart. It is important to keep in mind that there are no indicators so accurate in their predictive ability that they will make you rich. There are, however, a handful of indicators that are widely used because they provide clear, relatively-accurate trading signals and help measure the price trends of currency pairs.
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Moving Average, Convergence-Divergence
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The moving average, convergence-divergence, or MACD, indicator is one of the most popular because it provides clear, easy-to-read trade signals. The MACD is plotted at the bottom of a price chart as two lines -- a fast line and a slow line. The fast line is the signal line. When the fast line crosses up over the slow line, a buy signal is given. When the fast line crosses down over the slow line, a sell signal is provided.
Stochastics
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The stochastics indicator is an oscillating line plotted on a graph between 0 and 100 below the price area of a Forex chart. This indicator relies on the idea that prices tend to revert to their mean, or average. Generally, when the stochastics line is below 20, the price is considered oversold and should bounce higher once again. When the line is above 80, the price is considered overbought and should fall lower.
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50-Day Average
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The 50-day average is a moving average line plotted directly over the price area of a Forex chart. You can adjust the average to any period you wish, but according to Stockcharts.com, traders pay special attention to the 50-day average. When the price of a currency pair is generally rising, buyers tend to buy when the price dips back to the 50-day average. When the price is generally falling, sellers tend to sell when the price bounces back up to the 50-day line.
Directional Movement Index
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The Directional Movement Index, or DMI, is a bit more complicated to understand than other indicators, but it is very useful for Forex traders as it helps them determine the price trend and the strength of the trend for currency pairs. The DMI is plotted as three lines below the price area of a Forex chart. The ADX line measures the strength of the trend and the -DI and +DI lines tell you which direction the price is trending. If +DI is above -DI, the currency is in an uptrend, and vice versa. Meanwhile, if the ADX line is above 35, the trend is considered strong.
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References
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