Forex indicators are essential tools for traders and financial analysts to keep an eye on the movements occurring in the Forex market. The importance of these indicators cannot be underestimated. They need attention and a lot of practice to understand and decipher by a first-time trader. Many indicators are being currently used by traders; however, there are some that are used by a majority of traders involved in Forex trading. The main Forex indicators are described below.
This tool was developed for Forex trading by Bill Williams. It is a powerful trend indicator and is used to represent strong directional market actions. The chart is divided horizontally into two sections. The upper section is large and displays the movements in price while the lower section is the indicator. The indicator consists of red and green lines and represents various conditions like Gator Eating, Gator Awaking, Gator Satisfied and Gator Sleeping. These different states are indicated by a variation in the red and green lines.
This tool is highly complex and is a blend of three moving averages. However, due to its compact display, many Forex traders and financial analysts prefer this tool to keep an eye on the price changes. Also, the volatile tendency of the Gator oscillator provides a harmonious picture of the currency market.
Moving Average Convergence Divergence (MACD)
A very commonly used indicator, the MACD is used to measure the direction and strength of a continuing trend. It was developed by Gerald Appel in the 1960s and is a very straightforward and simple financial tool. The tool comprises of two EMAs or exponential moving averages and one trend line.
A crossover of the trigger lines and the MACD is a signal that the trend will possibly change. Also, patterns of divergence and convergence in the tool are strong indicators of a change in the price trend.
Being a universal tool of technical analysis, almost all trading software available to traders offers this indicator. One of the key trading software offering this indicator is MetaTrader 4.
Elliott Wave Theory
This is a very popular analysis technique that is applied by Forex traders for financial market analysis. The theorists believe that the price patterns that exist in the market are influenced by economic robustness, liquidity, and credit. These three aspects form a very important relationship and can influence the price patterns considerably.
The theory was initially proposed by an accountant, Ralph Nelson Elliott, in the 1930s. The theory has been regarded as an effective technique for dealing with market uncertainties. The Elliot Wave theory is typically based on the cyclical nature of events that occur in financial markets.
The market patterns are categorized in a hierarchy that allows for greater precision in all trade decisions, resulting in increased trader confidence. The key benefit of this indicator is that it organizes and condenses the price actions into simple trend lines that can be easily interpreted by Forex traders.
These basic indicators are useful tools of analysis that are important while trading in the Forex market.