The improvement in various technologies in the forex market has made it convenient to propel your forex income. Contrarily, the vast number of trading tools confuse many beginner traders.
A chunk of forex traders is unsure which strategy or tool to apply. For instance, the most typical worry is whether is to copy trades or rely on technical analysis.
After deciding to use the most reliable data-driven method (technical analysis), a massive challenge results: What are the top 5 technical indicators to prioritize in forex trading?
Simply put, you should focus on CMF, MACD, MA, RSI, and OBV when beginning forex trading technical analysis.
Later, you can introduce more tools and change trading strategies or platforms. First, let us take a look at what each of the top-rated forex technical indicators entails.
Successful forex traders understand market phases—accumulation, public participation, and distribution.
And that is the motivation behind the implementation of Chaikin Money Flow in forex trading. It helps you notice the phases your target currency pair undergoes in the following ways.
Assume you conduct day trading. A CMF closest to the day’s higher high signals accumulation. Most expert forex traders enter the market during the accumulation phase.
Likewise, a CMF adjacent to a low closing price implies distribution phase.
Moving Average Convergence Divergence is a momentum oscillator. A momentum indicator lets you know the rate at which prices change.
Trend indicators tell you when the prices are likely to change owing to their history. Volatility indicators inform you about the amount of price moving in a direction. You can use them to catch trading opportunities.
Lastly, volume indicators pioneer the price effect. Volume indicators, therefore, enable you to know the number of buys and sales of your target currency pair.
As a momentum indicator, MACD converts trend (MA) indicator into momentum by subtracting a longer-day EMA from a shorter-day EMA.
Moving Average is the root of technical analysis because most of the technical indicators build upon its components.
It tells you the best time to sell or buy currency pairs. It does that by getting a dynamic average for your target period’s data.
It is called moving average because the reading changes according to your predetermined period. It branches into SMA (simple moving average) and EMA (exponential moving average).
While SMA focuses on the overall price change, EMA is best for realizing the most current impact of the mean on price.
The Relative Strength Index helps you to determine the weaknesses and strengths of the current prices. It is regarded as both a momentum and strength indicator. It has a scale ranging from 0 to 100. Here is how the reading is crucial to you.
A reading rises to above 70, denoting market overbuying. Then, the buyers control the market. Soon the reading starts to fall.
When the reading is below 30, it means the market is in an oversold state. Then, prices are likely to start rising. And it would help to prepare for a mega profit later if you enter the market at the current reading.
A rising RSI denotes a trending market, whereas falling RSI signals a weak trend.
During the downtrend, a reading of 50 signals a bearish market. On the other hand, a reading above 50 and projecting towards 70 symbolizes a bullish market.
On-Balance-Volume is one of the most crucial technical indicators that tell you the trading pressure on your target currency pair. It does that by monitoring the negative or positive trading volumes.
It consolidates the power of trend and momentum indicators. On a curve, it usually lies below the candlesticks.
It helps you to catch errors that result from momentum indicators during a trending market. For example, you can combine it with RSI to notice false signals that RSI gives in a strongly trending market.
There are 30 and 38 built-in technical indicators in mt4 and mt5, respectively. Understanding the technical indicators requires a formula.
One of the most straightforward routes to applying technical indicators in forex is to understand the primary indicators such as CMF, MACD, MA, RSI, and OBV.