Forex Indicators for Traders - Download for Free

In order to understand the underlying trend or direction of the market, many forex traders use moving averages. There are further subcategories of this indicator type, and you can use one or more to capture trading signals. Here's a list of the four fundamental moving averages' types that are most commonly used in the world of forex trading.

• SMA (Simple Moving Averages)

• EMA (Exponential Moving Averages)

• WMA (Weighted Moving Averages)

• SMMA (Smoothed Moving Average)

Crossing simple moving averages as a buy signal

You can apply the averaging process based on low, high, opening, or even closing exchange rates. However, performing an averaging process on the closing exchange rate is the most commonly used one. For example, you can easily calculate the SMA exchange rates over a certain number of time periods. Dividing the sum by the total number of time periods will give you the average. You can use this averaging process to create a line that will indicate the average exchange rate of a specific currency pair. The line (moving average) will tend to send you a bearish signal when it lies above the exchange rate. On the other hand, it’ll be a bullish signal if the moving average lies below the exchange rate.

This is a trend indicator that is widely popular among traders. Its name is an acronym for the phrase “stop-and-reverse” (SAR), and this is the basic principle of its operation. The parabolic SAR is designed to indicate when the trend of a currency pair has a high probability of changing its direction - from an uptrend to a downtrend, or vice versa.

Visually it is displayed as a simple series of points located below or above the price chart.

Parabolic indicator settings are quite simple as well. You must remember that there is no such thing as a perfect indicator and it is not infrequent that, under the influence of temporary, misleading market noise, the parabolic SAR, or any other technical indicator,may generate false trading signals.

1. If the parabolic SAR points are under the current price as shown on a chart, that indicates an uptrend or bullish market condition.

2. If the SAR’s points are above the current price, that indicates a downtrend or bearish market condition.

The parabolic SAR indicator is excellent for setting stop-orders, either in conjunction with other indicators, or simply by using the parabolic SAR indicator’s signal alone as the condition for closing or opening trades.

The Average Directional Movement Index (the ADX) is an indicator that helps to determine if there is an existing, significant trend in a, and also give an indication of the strength of a trend.

The ADX Indicator consists of three lines: -DI, +DI, and the ADX. The -DI and +DI are called smoothed directional lines, and the ADX stands for the “Average Directional Indicator”.

When there’s an uptrend, the distance between the -DI and the +DI lines is increasing and the ADX is rising. Conversely: the ADX is falling when the market reverses to the downside or becomes a ranging, trendless market.

Trading with the ADX indicator:

That is the situation when the ADX is higher than the other two lines or interacts with them:

1. If the -DI line is lower than the +DI line, you should buy.

2. The best buy signal arises when the -DI line is lower than both the +DI and the ADX lines, provided that the ADX is rising.

3. If the +DI line is lower than the -DI line, you should sell.

4. The best sell signal arises when the +DI line is lower than both the -DI and the ADX lines, provided that the ADX is rising.

This is the situation when the ADX is falling:

1. When the ADX is falling, it shows that the trend is weakening and that there may soon be a trend reversal or lack of a trend altogether.

This is the situation when the ADX is lower than the other two lines:

1. If the ADX is lower than the other two lines, it shows that the market is stagnant and has no trend.

This is the situation when the ADX line is lower than the other two lines for a significantly long period of time:

1. The longer the ADX line remains lower than than the other two lines, the more powerful the next price movement is likely to be.

2. If the ADX is rising, but is still lower than the other two lines, it shows that the market stagnation is coming to its end. You should buy, if the +DI line is above the -DI line, and sell if the -DI line is above the +DI line.

Bollinger bands are statistically determined bands around a short-term moving average. They are created by calculating a simple moving average, and then a standard moving deviation from that average.

Bollinger bands reflect two standard deviations on each side of a moving average. Bollinger’s theory was based on historical price data showing that two standard deviations contain the vast majority of an asset’s price movement. Bollinger bands expand or contract in reaction to market volatility, becoming sensitive to the most recent market price action. The recommended setting for using Bollinger bands is a 20-period moving average, with the envelope formed by two standard deviations from that average.

Bollinger bands are usually used in conjunction with other technical researches to determine a trend reversal on the securities market. If the prices are close to the lower bound and another research confirms the reverse, therefore, there must be no risk to buy. For instance, the RSI divergence can be used to confirm that there is a trough at the bottom of the envelope.

Bollinger bands are usually used in conjunction with other technical indicators to determine a probable trend reversal.What is quite typical for a Bollinger band is a compression signal that forecasts upcoming higher volatility. Perhaps, the most elegant direct approach to the use of Bollinger bands is the volatility breakout system. This system has many variations and forms. The easiest strategy is to wait for the compression to come up (i.e., to wait for the scene to be set); and then, wait for the first price movement outside of the Bollinger bands. By combining this approach with various other technical indicators, it is possible to significantly improve your market analysis.

The Stochastic Oscillator is an indicator that compares a security’s extreme high and low closing prices within a given timeframe.

Stochastic parameters. This Oscillator is represented by a couple of curves:

• the fast Stochastic (K), is mainline

• moving average from K, is the D line

It is built in this way: the moving average is depicted as the dotted line, and the main curve is depicted as the solid thick curve.

The indicator plots overbought/oversold price levels. When the stochastic oscillator reading is 70–80%, that indicates overbought market conditions - when the reading is 20-30%, that indicates oversold conditions. Traders use the oscillator signals to identify probable trend reversal price points at which to enter or exit the market. Generally, you should sell when K is lower than D, but you should buy when the K curve is higher than D.

When the average number of positive changes in price is higher than the average number of negative changes in price, the RSI rises. The RSI indicator another momentum indicator that is used to identify trends or a lack of trend, and to indicate trend strength and signal possible upcoming trend changes. The use of the Relative Strength Index alone may lead to a large number of false signals, so it is better used with other technical indicators.

Practical application:

1. Divergence determination. The RSI is often used to indicate divergence between price movement and market momentum. For example, if price moves to a new high, but the RSI does not move to a new high, that is an indication of price/momentum divergence. When such divergence occurs, it is often an early indication of trend exhaustion and upcoming trend reversal. Thus, a trader might look to sell, anticipating a change from an uptrend to a downtrend.

The Momentum Indicator is one of the easiest technical indicators to use. Its purpose is to measure the variation value of a financial instrument’s price over a certain period of time.

In most cases, the Momentum indicator becomes a leading indicator forecasting future price movement.

The Momentum indicator in practical application:

1. A buy signal is generated in the event that the Momentum indicator creates a cavity and then reverses and starts to rise.

2. The Momentum indicator reverses

   

   A sell signal is generated when the momentum indicator creates a peak and then reverses and starts to fall.

3. The momentum indicator reverses by falling

   

   Extremely high or low values of the momentum indicator imply a strong current trend.

4. The Momentum indicator can be used as a leading indicator.The overshot of the Momentum indicator tends to be a signal that the market is approaching its peak.