Learning how to recognise forex indicators is a huge part of becoming a successful retail trader in the short and long term, and will play a big part in working toward an account which regularly posts a profit.
In this article we will be taking a good look at short term forex indicators, some of the most popular with day trading retail forex participants.
Price Action
This is without a doubt the most popular indicator which traders will try to master. Some might say it is more a field of study than an indicator specifically, as it removes technical indicators and instead teaches the trader to focus on the price alone.
Price action is usually used to grade a trend or identify support and resistance levels, and can also be used to illuminate favourable entry positions.
When using a price action chart, the main tool is a candle. A candle is made up of a body, two wicks, a close and an open. The wicks represent the high and the low for the time of that candle. The body is the price movement from the opening price.
The body size can differ on candles and depending on whether it moves up or down from its opening price will determine whether it is a bullish or bearish candle.
Moving averages
Moving averages, though not as popular as price action, also attempts to mitigate the lag that so often causes issues with a trade. The Moving average is the average rate of a currency pair over the chosen time period.
For instance, a 20-day moving average (20 day MA would mean adding the the close price of the past 20 days and dividing it by 20. This is called a simple moving average (SMA).
The moving average works best in a market that is strongly trending in either direction, as they will not give a good signal in a flat market with many crossovers.
Pivot points
Pivot points are used to identify support or resistance levels throughout the day, and they are a popular indicator with forex day traders.
As a standalone indicator it is probably not good enough to trade on, however the pivot point does supply added information for other indicators, increasing the likelihood of a successful trade.
There are many other indicators used by forex traders each and every day, such as Bollinger Bands, Moving Average Envelopes and Moving Average Convergence Divergence.
All these indicators and more, you will come across in your forex career. The above three listed however, are a good place to start building your knowledge of indicators and successful forex trading in general.
