Each trader's trading strategy provides for the reasonable use and a combination of several indicators which can predict and analyze the currency market. We will consider the best, in my opinion, indicators for Forex and stock markets. You can combine indicators, trace results and form using their basis your own trading system. There is no such indicator which could deserve a rank of the best. I will tell how it is possible to use some of them and to combine them in the best way.
The best Forex indicators are presented below. All of them are easy for studying and understanding and do not demand special knowledge and calculations. You need to build them into your trading system.
Bollinger Bands (BB) serve for measurement of price volatility. On graphics, it represents three bands, and the midland repeats the movements of moving average, and two bands of the parties from the moving average show, how unstable is market (or borders of price range).
What this indicator gives us?
When volatility is high and the price goes beyond bands, most likely to expect the return movement of the prices to the moving average level, therefore you can try to open the transaction “against the trend” or countertrend. Also, the midland acts as an indicator of the trend direction, and you can buy and sell according to its movement. This simple strategy is very effective.
Bollinger Bands is one of the best Forex indicators, but to make the picture complete I recommend to use them in combination with some leading stochastic.
It is one of the best indicators among the leading stochastic. It can be used for the definition of those periods when the market has a weak or strong trend, and also for a definition when market is overbought or oversold.
The simple trading strategy provides trade on crossing of two lines of stochastic, and you can trade both against a trend, and on a trend. It is very simple and very effective Forex indicator.
RSI (Relative Strength Index)
Developed by J. Welles Wilder Jr, RSI is a very good indicator that gives you a concept how strong is operating trend.
If the indicator diverges from a trend, it speaks about the weakness of the operational trend if he meets with it indicates that the trend is rather strong. As one of the best Forex indicators, the RSI offers to the trader the chance to change the trading strategy at the proper time. Often RSI is used together with other indicators and Stochastics.
ADX (Average Directional Movement)
One more Wilders' creation. It shows, in what state is the market, whether there is a trend, and what its force. When the ADX line rises higher than 40, it is a trade signal on the trend change.
At this moment, you have to make the decision on closing of the profitable transaction, and also on the subsequent sale. The ADX indicator is recognized by traders as one of the best Forex indicators which saved thousands of dollars and made a plenty of transactions very successful.
For no obvious reason recently the moving averages have not been used by traders while it is one of the simplest and effective indicators on Forex. The matter is that during the shorter periods of time price increase is temporary, and usually return to the average values.
One of the most effective periods of moving average calculation is the 20-day period. For trading on long-term trends - 40 days are used.
As for me, these are some of the best Forex indicators, but for successful trading it is necessary to combine them properly.
For example, use Bollinger Bands as levels of support and resistance to allocate all potential trading opportunities and RSI indicators and Stochastic – for confirmation of the price movement. ADX will help you even without trend definition, and also it works as a signal for a take-profit. And the moving average helps to place stop losses and to define the purposes.
Use these indicators in your Forex trading strategy and they will help you to make money easy and effective.