Trading and Investing

Technical Analysis Tools Every Forex Trader Should Use

Most experienced traders rely on forex indicators to make their buy/sell decisions. These tools are intertwined within a trading platform to offer an informed perspective of the market. Depending on the type of technical analysis tools used, one can either get a short-term or long-term forecast of a currency pair.

The type of trading platform also plays a big role in the number of technical analysis tools that you can access. Using MetaTrader4, for example, is better because it has the most technical analysis tools that enhance the trading experience. Let’s take a look at some of the most well-known tools, and try to understand which of them are suitable for you.

Technical Analysis Tools

What are the best indicators?

Well, the term ‘best’ is quite relative. This is because there is no single indicator that can be termed as the best. They vary from one trader to another. The decision to choose an ideal trading indicator should be guided by the target of the trader. Are you a day trader to long-term?

What currency pairs do you prefer? These are some of the questions that might help you identify an ideal indicator. However, the following are the top indicators that are commonly used by traders.

Moving Averages

These are amongst the top indicators designed to help a trader identify the breaks in price actions and the direction of the market. The top advantage of moving averages is that they are easy to analyze. With it, you can measure the average value of a currency pair within a time frame you select.

However, since they are based on historical data, you might not be able to use them for day trading as they are slow to respond to fast market conditions.

Oscillators

This indicator shows when a specified market trend has reached its limit and the opposite trend is expected to occur. For example, when a certain currency pair is too much in the spotlight, analysts would flag it as overbought, signaling expected stability or slide down of the price.

With this technical tool, a trader can maximize trading opportunities before a price movement occurs. However, there can also be a false signal using this analysis tool, thus the need to combine it with other tools. You should also be aware of the geopolitics that surround the price of currency pairs like the changes in global oil price.

Stochastics

Stochastics show possible price reversals in a market. While there are many types of stochastics, slow stochastics stand out as the most common. It is easy to understand and gives a clear trading signal. This can help you develop multiple trading opportunities, based on a single forex chart.

These three are the most used technical analysis tools. However, more experienced traders also

Conclusion

Use other technical indicators available on the MetaTrader4 platform. They include Fibonacci Retracement Lines, Relative Strength Index, and Bollinger Bands.

Forex traders must develop working strategies that they plan to stick to. Choosing one of the above mentioned technical analysis tools is one of the best ways to ensure that your trading decisions are not misguided by emotions, but rather by market trends and facts.

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About the author

Ashley Judd

My name is Ashley Judd, I’m 27 years old, I’m currently studying MA Accounting and Finance (yes I love numbers) at university in Nottingham. I write down all my thoughts and perceptions and to ramble on about anything and everything.