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Forex Bond
Technical indicators are common technical tools used by traders worldwide in FOREX and other markets. In this article we will present the 3 most powerful indicators for FOREX trading.
1 - Bollinger Bands
Developed by John Bollinger in the 80s, Bollinger Bands are one of the most powerful trading indicators. They provide traders dynamic support and resistance levels that are based on market volatility - and are very useful for gauging trend and range. Traders can use the Bollinger Bands to estimate overbought and oversold periods: if prices are near the lower band they are oversold, and near the upper band they are overbought. This way this indicator can act as a leading indicator and produce reversal trading signals.
Technical Indicator
2 - Moving Average
Moving Average is also a highly powerful trading indicator - not as a trend-following indicator, but as a leading one. At IndicatorForex.com, we trade moving averages in a unique way - as a retracement zone. In this way, the trader waits for price to retrace and test the moving average as support\resistance level. If price bounces on the moving average, a trade is issued. This is a very powerful technique that is able of producing high-probability trades with small risk and high profit. It is a combination of trend-following with reversal identification and it is a useful strategy in FOREX. Another use of Moving Averages is to gauge between periods of trends and range. It is very important to know whether the price is in trend or range, as it changes the whole trading philosophy and methodology: at range we will take reversal trades while at trend we will attempt to join the trade in retracements or pullbacks. The moving average's slope indicates trend or range, if the slope is steep (the moving average is trending), the price is in trend and if it is flat the price is ranging.
3 - Relative Strength Index
Developed by J. Wilder Welles, the Relative Strength Index (RSI) is one of the world's most popular indicators. It is an oscillator that shows overbought and oversold periods at price at generates reversal signals. Its signals are of high quality and usually predict the reversal of trends before other means of analysis. The signals of this indicator are generated when it crosses the overbought or oversold level - a cross from below indicates a long entry while a cross from above indicates a short entry. The best signal occurs when the RSI touches one of the levels and immediately retraces to the other direction. This indicates that the level has a strong psychological effect on price and that the reversal will be strong and quick.
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