Moving averages
A moving average is a plotted line that is created with the average price of a currency pair over a period of a few weeks, months or even a year. It tells you about the general direction of Forex between the two currencies. You can get moving averages for a month or 6 months or a year. This is a critical indicator for Forex traders because:
It tells you which currency has greater momentum in the global market
It lets you identify the most opportune time to buy or sell a particular currency
It allows you to predict with reasonable accuracy, when a currency pair is going to change direction.
Relative Strength Index
If you are the kind of Forex trader who follows the "buy low, sell high" mantra, then the RSI is one of the simplest indicators in your toolbox. Relative strength index tells you:
When a currency is overbought or oversold
When the direction of a currency pair is going to reverse course
What is the right time to buy or sell a currency
You need to combine RSI with other indicators to get a more accurate prediction for the change or direction for a currency pair.
Stochastics
The stochastic indicator is very similar to RSI, but is a bit more advanced. It uses plotted lines in the form of %K and %D in which indicate overbought and oversold readings. You know that you can safely buy a currency when the %K line for a pair crosses above the %D line. By combining this with RSI, you will be able to profit more often than not.
Moving average convergence and divergence
For traders who are entrenched in the market, the MACD is the master of all Forex trading tools. It gives you a more comprehensive visual display of momentum of a currency pair.
With MACD, you look for two indicators. One is the direction of lines with respect to the zero line. This tells you which currency is stronger. You then look for crossovers between the red and blue lines for both currencies. This will tell you exactly when to buy or sell a currency, and earn with leverage.
If you are new to Forex trading, it will take you some time to identify the most optimal set of tools to use as indicators for "buy" and "sell". However, RSI and MACD should definitely on the list of any successful trader.
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