Traders can apply indicators in forex charts so that they are able to get an accurate indication about the direction of the market. Although there are many varieties of indicators that are available on the trading platform, you may not be able to apply all of them to the charts. What you need to do is to select the indicator that you are most comfortable with so that you are able to use it in an effective manner.
It is advisable for traders to try out the indicators that they plan to use when trading in the forex market. You need to understand that what works for one strategy may not work for others and if you test it before use, you may be able to make an informed choice.
Choosing the best indicators in forex charts
Moving average convergence divergence (MACD) is one of the most popular indicators used in forex charts and can help you predict the next movement of price level. If you see the MACD histogram shortening upwards it indicates that the buying pressure is over and a reversal is coming. If the histogram shortens downwards, it indicates that the selling pressure is over and buyers are gaining strength in the foreign exchange market.
Exponential moving average 200 (EMA) when used on a chart can help you know whether the market is trending or not. You may be able to tell the trend and strength of the market using this indicator. You can also use it for entry and exit of your trading position.
Relative strength index (RSI) is one of the most well known momentum indicators used for technical analysis. You may be able to measure the strength of the currency and this can help you identify the overbought or oversold market conditions. The RSI indicator has a range from 0 – 100 and when the price moves beyond the 100 level it indicates that the market is overbought. When the price moves below 0 it indicates that the market is oversold.
Tips for using indicators in forex charts
It is advisable to use at least two to three indicators in forex charts so that you are able to determine whether the indicators work correctly. You can use a larger time frame so that you are able to identify a trend from the chart. When you use a smaller time frame, you may not be able to ascertain the trend accurately.
The standard time frames in most trading platforms are five minutes, ten minutes, fifteen minutes, thirty minutes, one hour, two hours, daily, monthly and weekly. The time frame that you choose for the charts can be based on the prevailing market conditions.
The forex market is volatile and keeps fluctuating at regular intervals. If you do not understand the direction of the market when placing a trade you may not be able to trade successfully. When you are able to determine the entry and exit positions you may be able to make consistent profits on your trade.