What Is The Most Accurate Forex Indicator? Top 12 You Should Know
You might wonder, what exactly are forex indicators? If you already know what they are, you might be wondering which one is the best. Trading indicators are mathematical calculations that help traders determine different things in the price of an asset. While some indicators tell how much volatility would hit an asset, other indicators help determine whether the price of an asset would move up or not. Some trading indicators do more than this however as they also help predict whether the direction in which the price of an asset is going would continue in that way or stop. You must know that while trading indicators are indeed helpful tools in navigating the market, they are not to be relied on most of the time. The fact that you used the most definite and accurate indicator doesn't guarantee prediction or profits. Some events cannot be predicted. In this article, we'll discuss the top indicators used mostly by traders and investors. These indicators would come in handy especially for novice traders who are still trying to find their way around the market.
A moving average is one of the most utilized trading indicators due to its effective method and its way of filtering out unnecessary data from its calculation. Moving averages can be built in different ways, depending on the time frame the trader wants to use. They are mostly used to determine the direction of a trend and its resistance levels. When the price of underlying security crosses over its moving average, it's often an indicator for professional traders and technical investors. Moving averages are mostly divided into two, Simple Moving Average (SMA) and Exponential Moving Average (EMA).
2.Relative Strength Index (RSI)
Developed in 1978, the RSI is a widely used momentum oscillator. This indicator is incredibly useful for technical traders as it provides them with signals on the phase of an asset price. It helps them determine whether underlying security is in the bullish or bearish phase. There's a general formula to knowing the state of an asset. When the RSI of an asset is above 70, the asset is considered overbought. This helps traders predict a pullback or a reversal. When the RSI is below 30 on the hand, the asset is generally considered to be oversold.
3.Moving Average Convergence Divergence (MACD)
MACD, as an indicator, helps traders determine whether the bullish or bearish phase of an asset is weak or strong. One thing to know first is that MACD is often used in different ways. The indicator creates a signal when it moves up or down its signal line. It's often calculated by removing the 12 period EMA from the 26 period EMA. Its crossover speed most of the time also helps traders determine whether an asset is overbought or undersold. Another way a MACD indicator can be used is to determine the rapid rise or fall of an asset.
The major feature of this indicator is that it helps traders determine great entrance and exit points. Like most indicators, Bollinger bands are used to determine the state of an asset and see if it is overbought or oversold. One thing to know about this indicator is that it might be a risky idea to use it alone as it only focuses on market volatility and price while other info is generally disregarded. This indicator is popular with technical traders, professional investors, newbies, and those who trade once in a while at home.
This indicator mostly depends on closing prices and the history of asset data. This indicator is also used to help generate overbought or oversold signals. Developed in the 50s, this is an incredibly popular momentum oscillator among traders and investors. Like the RSI, this indicator works with ranges. So whenever the readings of an asset are capped to be over 80, the asset is generally considered to be overbought. When the readings are under 20 on the other hand, it means the asset is oversold. It's important to note that these readings are not always predictive of a pullback. A lot of assets can withstand being overbought or oversold for a long time.
The Ichimoku Kinko Hyo, also known as the equilibrium chart or the Ichimoku cloud is a rising indicator among traders (mostly newbies and those who are not new to the forex business). Mostly used for trading futures and equities, the indicator provides a more trustworthy price action by showing more data points on the chart. Apart from this, the application of the Ichimoku Cloud is known to consist of three different indicators. This provides more detailed information on the asset and allows the trader or investor to make a more reliable decision in his trades.
Also known as Fibonacci Retracement Level or Fibonacci Ratio, this indicator is known to be predictive and works mostly when the market can be said to be trending. Fibonacci Retracement Level consists of horizontal lines that show support and resistance levels of an asset which in turn helps determine when a pullback or a trend reversal could occur. Apart from identifying support and resistance levels, this indicator also helps traders determine when to place stop-loss orders and help set target prices. It's advised to not use this indicator alone. Like most popular indicators, it works best when used along with other trading tools.
8.Average True Range (ATR)
Average True Range is a technical indicator used mostly when the market is volatile. When it was first developed, the goal was to use it in the commodity market. As time went on, however, traders began to apply it to other kinds of markets. An asset with high volatility is said to have a high ATR while an asset with a lower volatility range is said to have a lower ATR. It's important to note that the ATR is not used to determine price directions. It's only used to measure market volatility and limit the noises due to minor fluctuations.
The Parabolic Stop And Reversal indicator is mostly used to determine when a trend will end, rather than when it will begin. This indicator places points on where there might be a pullback or a reversal on a trend, which helps traders exit a trade. How it works is simple, a dot is placed above the price of an asset when it's moving upwards and below the price of the asset when it's moving downwards. Like most indicators, it's advised to not use this one solely. It should be applied along with others.
This is an intraday trading indicator that has been applied in trades over and over by professional investors and technical traders. This indicator simply uses the data of the trends the previous day to determine the overall direction of the market. Like the Ichimoku, it includes support and resistance levels that are predicted based on the calculation of the pivot point. These levels help traders clarify the direction of an asset. So if the price moves along these levels, it lets the trader know that the asset is trending in that particular direction.
The major feature of this indicator is that it helps traders determine how huge the price movement of an asset is going to be. This in turn helps the trader determine how much volatility would hit the market as time goes on. It's important to note that the functions of this indicator don't include determining whether the price of an asset would go up or down. All it can do is tell whether volatility would affect the asset or not. This indicator also makes use of historical data to determine volatility. Traders who use this indicator believe that small price movements would follow big price movements and vice versa.
12.Average Directional Index (ADX)
Like most indicators on this list (RSI, Ichimoku, Stochastic Oscillator), this indicator also makes use of values ranging from 1-100. It can be safely said that a reading of the movement of an asset above 25 is a strong trend while a reading below 25 is a drift. Traders and investors use this indicator to determine whether the movement of an asset would continue in that direction or not. The ADX of an asset generally rises when the price is falling. This helps traders identify a downward trend incoming.
When it comes to the real question, which of these indicators is the best, there is no exact answer. These indicators are used for different aspects of the price of an asset. Some predict movement while others determine volatility. This is why it's advised not to use one indicator alone when calculating the price. In other words, these indicators work best when they are used alongside each other. There you have it, all you need to know about these indicators. If you're going to use these indicators, you must do more research on how to use them and the formulas needed. Trade safe and have a good day.