What are Forex Indicators? Definitions and How to Use them to Earn More

Main Types of Forex Indicators

Now that you understand what forex indicators are and how they can help you develop your investment strategy, let’s get into the main types of signals: trend indicators, forex volume indicators, forex oscillators, and moving averages.

Each signal is unique and has a standard purpose and principle of operation. Understanding this for each indicator is key if you wish to use them to improve your forex trading results.

Trend Indicators

Forex trend indicators are just what they sound like – data that can help you analyze market trends and patterns. While that may seem simple at first glance, there is much more that goes into it. You must carefully review these indicators, as you can always be swayed by what you believe the patterns to be.

The most obvious trend indicator is price. This is the most important variable as other indicators pull from it as well, so your first step should be to understand price action. Setting rules for currency pairs based on price movements can help you make strategic decisions.

You can personalize these rules based on your experience, such as a few days in a row of higher highs can lead you to believe there is an uptrend. Or perhaps you could use a price that is above the 100-day average to be an uptrend.

This data can allow you to generate trading signals. It's not an easy task to perfect, but using backtesting can help you develop a feel for what works. Conduct various experiments to understand the results and adjust the lookback period as needed if you have a more volatile currency pair.

Forex Volume Indicators

If you wish to better understand how other traders are feeling about a currency pair, consider following forex volume indicators. Unlike the stock market where it is simple to analyze the volume, the forex markets require you to use volume indicators.

There isn’t one central exchange and trades happen over the counter, so you can’t just look at the number of contracts or shares that are traded during a timeframe. Instead, you must rely on a forex volume indicator provided by a brokerage. This figure represents how much volume is received by that specific platform.

Not only can these help you confirm trends occurring with a currency pair, but they can also allow you to confirm a forex breakout. Is the trend healthy and secure? Is the pattern slowly falling apart? A forex volume indicator can help you answer these questions and signal the buying and selling pressures.

Forex Oscillators

Another type of signal is called a forex oscillator. These unique metrics allow investors to find the best entry and exit points for their position – or rather when a specific currency pair is overbought or oversold.

Generally, an oscillating forex indicator will gravitate between a few levels on the price chart and investors will use it as a barometer to determine price momentum. These markers can indicate trend exhaustion, market reversal, and extension so you can determine when to open or close a position.

A common signal in this category is the Stochastic Oscillator. It is a multifunction indicator that is best known for bringing to light market signals before they even appear on a chart. The chart will compare the closing prices of the extremes during a specific timeframe, including the Stochastic as the main K line and the moving average as the D line.

If the indicator exits the oversold or overbought areas, it is a sign that you should exit the position. When the Stochastic line is below the moving average, consider selling. However, if the K line moves above the D line, you should buy.

Moving Averages

Forex traders use moving averages to understand the direction the market is moving and other underlying trends. There are many ways to measure the moving averages of currency pairs, as you can apply them to opening, closing, low, or high exchange rates. The most common practice, though, is to take the moving average of closing exchange rates.

You can even analyze moving averages in several ways. Whether you choose the simple, smoothed, weighted, or exponential moving average, the goal is to capture a signal that tells you whether to open a long or short position.

These are the four fundamental moving averages and can be used in combination to strengthen your understanding of the currency pairs. The simple moving average, for example, is calculated by adding the exchange rates together over a specific timeframe, then dividing it by the total number of periods. As you continue the averaging process, you can plot the data points, and the resulting line will demonstrate the average exchange rates of a unique currency pair.

If the moving average is below the exchange rate, it is a bullish signal – and investors who follow this indicator will open long positions. On the other hand, if the moving average falls above the exchange rate, it is a bearish signal. That means it is an indication to pursue a short position on the currency pair.

Forex trading tools will help you calculate these moving averages automatically, clearly displaying the signals on charts and bar graphs for you.

Download Forex Indicators for Free

Not all forex indicators are the same or easy to use, so consider downloading some for free. Here you can find a more detailed description of the best indicators for your strategy – and start using them to improve your results.

Best MT4 Forex Brokers

The Top forex brokers offer MT4 – providing users with access to these indicators allows them to make valuable decisions to buy and sell currency pairs. The platform offers many useful functions including forex indicators. Here is a comparison of the best MT4 forex brokers:

Admiral Markets

Admiral Markets Review Open an Account

Another top forex broker is Admiral Markets. They support MT4 and MT5 and boast a user-friendly platform. It includes a wide variety of tools for technical analysis and offers automated trading, so investors can make the most out of their indicators.

Admiral Markets is a stable and reliable platform, regulated by the Financial Conduct Authority and CySEC. They offer competitive spreads, but they do charge an inactivity fee which other brokers do not. You can trade over 47 currency pairs using their brokerage.