Choosing the best Forex technical indicator is futile when you want to trade Forex. This is simply because there is no short cut in trading Forex, and to succeed, you’ll have to follow the same route as every other trader and learn how to trade. This means that you will have to learn how some of the most popular Forex indicators work, what are their strengths and weaknesses, and how they work together to give you a clearer understanding of how to trade.
What are Technical Indicators?
Before we list these indicators, you first need to know what they are. Forex indicators are mathematical tools designed to analyze five Forex areas. These areas are volume, open prove, high, low, and closing price. The results of the analysis are indicated graphically in charts as patterns. In some cases, these results are indicated on the price chart, and in other cases, they are indicated in a separate window. With that said, here are some of the most popular trend indicators:
Average Directional Movement Index (ADX)
The ADX indicator is designed to analyze the strength of trends. The design of this indicators is built to mimic the Exponential Moving Averages (EMAs) of two Directional Movements (+DI and -DI) indicators. The DI indicators calculate the relationship between the highs, lows, and closing prices of the present day and those of the previous day and the sum divided by the ATR (Average True Range). The +DI indicates the strength of the bull today as compared to yesterday, while the -DI indicates the strength of the bear today compared to the previous day. Now, what the ADX does is it sums up the values of the two Directional Movement indicators and tells which one between the bulls and bears are stronger today in comparison to the previous day. This is indicated on a scale of 0 to 100. A weak bullish or bearish trend is indicated by an ADX that is below 20, and if the threshold is above 50, this indicates a strong bullish or bearish strength.
Moving Average Convergence/Divergence (MACD)
This technical indicator is designed to show changes in the duration, momentum, direction, and strength of a trend. MACD is designed around the 12 and 26 periods moving averages but with some additions.
This indicator comprises of a MACD line, the signal line, and a histogram. A change in the price direction is indicated by a divergence in this indicator.
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