Why is it Important Use Forex Indicators?

Forex indicators are a series of data points applied to predict movement of currencies. It is a technical indicator containing following components.

♦ Stochastic Oscillator

♦ Relative Strength Index (RSI)

♦ Elliott wave theory

♦ Moving Average Convergence Divergence (MACD)

♦ Number Theory

♦ Gaps

♦ Chart formations

♦ Trends

Stochastic Oscillator:

It indicates the oversold and overbought conditions on scale of 0-100%. In uptrend, the closing prices concentrate on period range's higher part. While in downtrend, the closing prices are near extreme low level on period's range.

Relative Strength Index (RSI):

It is most popular in Forex indicators. The RSI is displayed in range between 0-100 and calculated by measuring the ratio of upward moves to downward moves. The instrument is considered overbought if RSI is 70 or greater, while a RSI of 30 or less, it indicates instrument oversold.

Elliott wave theory:

The theory is a way to analyze market, which depends on Fibonacci number sequence and repetitive wave patterns.

Moving Average Convergence Divergence (MACD):

This indicator requires plotting two momentum lines. The MACD line refers to difference between two exponential changing averages and trigger or signal line, which refers to exponential moving average difference.

Number Theory:

Fibonacci numbers is a sequence (1, 1, 2, 3, 5, 8, 13, 21, 34.....) achieved by adding first two numbers to achieve the third number in the sequence. The ratio between the smaller number and the next larger number is 62%.

Gann numbers:

The Gann numbers refer to methods developed by W.D. Gann to trade instruments, which are based on relation between time and price movement. These Forex indicators are hard to explain, as it uses angles in charts to ascertain resistance, support areas, and speculate the timing of future trend.

Gaps:

No trading is indicated on bar chart by spaces, which are called Gaps. These Forex indicators indicate the market conditions.

There are different types of indicative gaps in Forex indicators

♦ An up gap is displayed on the graph when lowest price of trading day is comparatively higher than highest high price of the previous day. It is a sign of strong market.

♦ A down gap is displayed on the graph when highest price of the trading day is comparatively lower than lowest price of previous day. It is sign of weak market.

Chart formations: There are different chart formations such as rectangle, head, shoulders, and triangle chart, which display different information related to Forex indicators.

Trends: They are Forex indicators that denote direction of prices. Rising peaks and troughs signify uptrend and falling peaks and troughs signify downtrend.