The Best FOREX Charting Indicators
Forex is a worldwide currency exchange that facilitates the exchange of various world currencies. Currency is priced in related pairs. For example, the USD/EUR pair is the price of the dollar quoted in euros. Forex traders and investors sometimes use price charts to estimate the future direction of a currency pair. Chart indicators are tools, created by formulas, that help chart analysts see the price action of a pair from different perspectives.
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Stochastic
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The stochastic is an indicator that helps measure when a pair's price is overbought or oversold relative to its recent average price. This indicator is plotted as an oscillating line on a graph below the price area of the chart. The line oscillates between 0 and 100. When the stochastic line is above 80, it indicates the price is overbought and likely to reverse lower. When it is below 20, the price is oversold and should reverse higher.
Bollinger Bands
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Bollinger bands measure the average price range of a pair. It is plotted directly on the price area of the chart as two lines that create a price band. The lower line represents the lowest recent price levels the pair has traded at, and the upper band represents the highest recent levels it has traded at. When the price is at the top or bottom of the band, it tends to reverse in the opposite direction.
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50-Day Average
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The 50-day price average is arguably the most important moving average. According to the Stock Charts website, this is the average most watched by institutional investors. It is plotted as a line directly on the price area of the chart, and it represents the average price of the pair over its past 50 days. When a currency pair is in a rising trend, the line will rise from left to right. Identifying a price trend can help traders position their trades in the direction of the trend.
MACD Histogram
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The moving average, convergence-divergence (MACD) histogram is a useful indicator because it is simple to read and provides reasonably accurate buy and sell signals. This histogram is plotted on a graph below the price area of a chart in relation to a 0 line. When the histogram moves from below 0 to above 0, a buy signal is provided. When it moves from above to below the 0 line, a sell signal is provided.
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References
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