Indicator is a term that perhaps any trader needs to understand to apply in their Forex trading process. So do you understand what indicator Trading is? If not, then don’t hesitate any longer and find out with Forex Trading right away in the article below!
Answering the term “Indicator” in Forex technical analysis
Before going into the more in-depth parts of the article, you must first understand what the term Indicator is.
What is the concept of an Indicator?
Indicator is a term used to refer to analytical tools and technical indicators used by investors when trading in financial markets, including the Forex market. The formation process of indicators is based on price data as well as past trading volume.
Among Indicators, there are indicators that are displayed directly on the price chart, closely following market price fluctuations, typically PSAR, Ichimoku… However, there are also indicators that are not on the chart but is displayed below or must open the interface to observe such as RSI, MACD,…
Based on the analysis of Indicators, investors can predict future price trends. From there, come up with an appropriate investment plan.
Classification of current Forex Indicators
Currently, Forex Indicators are divided into two main types: fast indicators and slow indicators.
Indicator Trading (Leading Indicator)
Fast Trading Indicators are indicators that provide market signals before price action takes place. These indicators are calculated based on past price data.
Indicators in the fast Indicator group include RSI, CCI, Stochastic…
Accurate calculation of these indicators helps identify overbought and oversold areas to predict when the price will reverse. From there, investors find the most suitable investment opportunity.
The common feature of this group of indicators is that they often move in a fixed area. If RSI is from 0 to 100, CCI moves in the range from -100 to +100.
Lagging Indicators
As its name suggests, slow indicators usually have more lag than fast indicators. They follow price action. Although they follow price action, the signals and trends of this group of indicators have the advantage of being less noisy than fast indicators. That’s why this group of indicators will be more suitable for long-term investors who tend to hold orders for a long time.
Belonging to the slow Indicator group, there will be some typical indicators such as Bollinger Band, MA, Momentum…
Analyze popular indicators
To help you better understand Indicators in Forex trading, let’s analyze some popular indicators.
Trend Indicators
The group of trend indicators plays a role in helping investors predict the price trend of the market. It can be an uptrend, downtrend, or sideways. Belongs to the group of trend indicators including MA, PSAR, Ichimoku…
What is the Ichimoku Indicator?
Ichimoku is a collection of many technical indicators that help investors recognize market signals on candlestick charts. Through the Ichimoku Indicator, investors can grasp some important information such as price trends, momentum as well as trend strength, resistance, and support zones, and help give order entry signals. , close orders at the right time.
The Ichimoku indicator includes 5 components: Tenkan-sen line, Kijun-sen line, Senkou Span A line, Senkou Span B line, and Chikou Span line.
– Tenkan-sen line is calculated by adding the highest and lowest prices in 9 trading sessions and dividing by 2. This line helps investors find resistance, support, and price reversal signals.
– Kijun-sen line (baseline): Line calculated by adding the highest and lowest prices over 26 trading sessions and dividing by 2. The line represents major resistance and major support levels. Based on this line, investors can predict trend changes and find appropriate stop-loss points.
– Senkou Span A line is calculated by adding Tenkan-sen and Kijun-sen together and dividing by 2. The line is used for the purpose of identifying resistance and support areas in the near future.
– The Senkou Span B line is calculated by adding the highest and lowest levels of 52 trading sessions and dividing by 2. The line helps identify future support and resistance areas.
– The Chikou Span line is determined by the closing price at the current period but drawn back 26 trading sessions. This line helps identify possible resistance and support areas.
MA in Forex technical analysis
MA is the acronym for Moving A average, which means moving average. Based on moving averages, investors can know whether the market price is in an uptrend, downtrend, or sideways. From there, make the next prediction of the market and enter an order. There are 3 types of MA lines including SMA line, EMA line, and WMA line.
- The SMA line is considered the simplest form of the MA line. This is the average index of closing market prices in a certain period of time.
- The EMA is an exponential moving average. This line is only calculated when unusual price fluctuations occur in a short period of time.
- The WMA is a moving average. WMA is used to help identify recent market signals. WMA is not contaminated by historical price data.
Forex Indicators measure volatility
The next most popular indicator is the group used to measure volatility. This group includes indicators such as Bollinger Bands, ATR…
Bollinger Bands indicator
Bollinger Bands are a combination of moving average MA and standard deviation. The Bollinger Bands indicator includes a moving average in the middle. Above and below are two boundaries.
The distance of the MA line to the Bollinger bands is the price fluctuation level. When prices fluctuate strongly, Bollinger bands will tend to widen. On the contrary, when the price fluctuates little, the Bollinger bands gradually narrow.
How to calculate Bollinger Bands:
The middle Bollinger Band is a 20-day moving average of price. SMA (20) is calculated as the average of closing prices in 20 trading sessions.
Upper band = SMA (20) + 2 x Standard deviation of price within 20 days.
Lower Band = SMA (20) – 2 x Standard Deviation of price over 20 days.
Indicator Trading ATR
ATR is the English abbreviation of Average True Range, which means the average actual range. ATR is used to measure Forex price fluctuations over a specific period of time. From there, investors can assess the risk level of the market. Besides, you can also determine the exact time to enter orders and cut losses.
Momentum indicators in Forex technical analysis
The group of momentum indicators in Forex technical analysis includes MACD, RSI…
MACD indicator
MACD is the acronym for Moving Average Convergence Divergence, which means moving average convergence divergence. Lines provide signals about market price fluctuations to help traders enter/exit orders at the right time. The MACD line is determined based on the difference between the moving average EMA (12) and EMA (26).
MACD = EMA(12) – EMA(26)
A positive MACD shows that the market has signs of growth. On the contrary, when MACD is negative, the market is falling into recession.
RSI Trading indicator
RSI is an indicator used to determine continued market trends. This indicator is expressed as an oscillation between two boundaries from 0 to 100.
Rules when using Indicators in trading to achieve maximum efficiency
In the process of using indicators for Forex technical analysis, investors need to master some of the following rules to achieve maximum efficiency.
Do not use an Indicator alone
First, you should not use any Indicator alone. Because, you know, every indicator has its own features and can only predict a certain part of the market. Therefore, you should combine many indicators together to evaluate the trend. Only when there is a combination of many indicators will the prediction be highly accurate, bringing maximum profits to investors.
Along with specific and detailed Forex technical analysis strategies
The taboo for Forex investors is trading based on emotions. Emotional trading can in some cases be profitable. However, it also brings significant risks. Instead, you must rely on technical analysis strategies to analyze and evaluate. Only then will your hunch have a basis for success.
Test Indicator Trading on a Demo account
For investors who are just entering the Forex market, you should spend a lot of time practicing analyzing technical indicators. You can create a Demo account and test Indicator Trading. After a while, when you have mastered how to analyze and trade, create an official account and invest capital.
The rules for using indicators in Forex are not difficult. However, for newbies, memorizing too many indicators gives you a headache. If so then you can learn about RSI Indicator. This is considered the most important and effective momentum indicator. You can apply in most transactions.
Learn about RSI Indicator – One of the most effective momentum indicators
RSI is an indicator that every trader needs to understand to apply in their investment process.
What is the concept of the RSI Indicator?
RSI is the English acronym for Relative Strength Index, which means relative strength index. This index is used to measure Forex price changes and is shown in chart form. This chart moves between two ranges with values from 0 to 100. This chart is located below the price chart.
On the chart, you notice 3 important milestones: 30, 50, and 70.
Level 50 does not indicate a trend.
If RSI < 30, the market is oversold and Forex prices are trending down.
RSI > 70, the market is overbought, and Forex prices tend to increase.
Meaning and role of advanced RSI indicator in Forex
Indicator RSI has an extremely important role and meaning in Forex investment. Specifically:
The RSI index helps identify Forex buy/sell signals
When the RSI Indicator level is > 70, it is in the overbought zone. Forex prices are on the rise. At this time, investors can consider selling part of their Forex assets to make a profit.
On the contrary, if RSI < 30, it is in the oversold area. Forex is being sold in large volumes, causing prices to drop. This RSI level also reflects that Forex may increase again in the future. Investors should take advantage of low prices to buy.
If case RSI is equal to 50, it is at an average level. Forex prices can increase or decrease. If the RSI Indicator level goes above 50, forex will increase in price. If the RSI is below 50, the forex will be bearish.
Normally, an RSI below 30 is the oversold zone, and above 70 is the overbought zone, however, to better define the trend, traders can also adjust the level to 20 for the oversold zone and 80 for the overbought zone.
Indicator RSI shows the change in price direction
Based on divergence, investors also recognize changes in price direction. Divergence occurs when Forex prices move against a technical indicator. This proves that the price tends to weaken and may change. There are two main types of divergence: negative divergence and positive divergence.
- Positive divergence occurs when the price chart continuously decreases, the next bottom is lower than the previous bottom. However, RSI tends to increase. This is a signal that the price may increase. In this case, investors can fish for the bottom to seize the opportunity and should not temporarily sell Forex.
- Negative divergence: Negative divergence occurs when the price chart continuously increases, meaning the next peak is higher than the previous peak. However, the Indicator RSI decreased. This indicates that Forex prices may drop sharply. Investors holding Forex in hand can sell to take profits.
See more: Master the Forex “game” with Price action
Formula to calculate Indicator Trading RSI
Indicator Trading RSI is calculated using the following formula:
RSI = 100 – 100/ (1 + RS)
In there:
- RS is calculated as the Average of total increasing periods / Average of total decreasing periods
- The calculation time is the latest 14 days.
For example: In the last 14 days, the market closed higher in 7 days, an average increase of 2%. In the remaining 7 days, the average closing price was -0.8%. RSI is calculated as follows:
RS = (2% /14) / (0,8% / 14) = 2,5
RSI = 100 – 100/ (1 + 2,5) = 71,4
RSI = 71.4 > 70 shows that the market is in the overbought zone. Forex prices are trending up. If you are holding assets, investors can consider selling to take profits.
Instructions on how to apply Indicator RSI effectively on the Tradingview platform
To use Indicator RSI on the Tradingview platform, you need to open this indicator on the application. To open Indicator RSI on Tradingview, follow these steps:
Step 1: First, visit the Tradingview website on Google, and find the Forex code you want to trade.
Step 2: Above the toolbar, select Indicator.
Step 3: In the Indicator section, search and select RSI. At this time, the RSI interface will be displayed. You observe to determine overbought and oversold areas and analyze.
Conclude
Above is all the necessary information about the Indicator in Forex investment. Please review it carefully and apply it in your trading process. Besides, don’t forget to regularly visit Forex Trading to update more useful knowledge about Forex. Good luck!
FAQs:
Are Indicators displayed on Tradingview?
Most Forex Indicators are displayed on Tradingview, you do not need to waste time calculating. There are indicators displayed right on the price chart. However, there are also indicators that are not displayed on the chart. You just need to select Indicator on the toolbar and choose the indicator name to display.
Besides the Indicators above, what other indicators are there?
In addition to the Indicators introduced above, there are many other indicators such as OBV, A/D, ADX, CCI, and MFI…
Does Indicator RSI have any limitations?
The RSI index is quite accurate in the long term. However, because it is a momentum indicator, even though the asset has large changes in quantity in both up and down trends, the RSI level still maintains the same overbought and oversold levels for a long time. This can cause investors to make wrong predictions and lose money.
