What Are The Best Forex Technical Indicators For Beginners

They typically do this because such indicators help take the guesswork out of forex trading and allow their trading decisions to become far more objective.

As one of the most popular tools utilized in forex trading, there are many different types forex indicators. Many pieces of software, including MetaTrader or cTrader, allow traders to create their own technical indicators and incorporate them into the platform. Therefore, there is no shortage of these indicators at all.

But for forex beginners, it might be challenging to use complex indicators. In this article, we will focus on three easy-to-understand simple indicators that traders can make use of in their daily trading.

What are Forex Indicators？

Forex indicators are a big part of technical analysis, used by traders globally in order to aid the decision-making process. Forex technical indicators consist of mathematical calculations that forex traders often use based on the exchange rate, volume or open interest of a currency pair.

There are different types of trading indicator, including leading indicators and lagging indicators. A leading indicator is a forecast signal that predicts future price movements, while a lagging indicator looks at past trends and indicates momentum.

Three Best Forex Technical Indicators For Beginners

In keeping with the idea that simple is best, there are three easy indicators you should become familiar with using one or two at a time to identify trading entry and exit points:

1. Moving Averages

One of the most common and well-known technical indicators is the moving averages. Moving average is the average price of the last number of candles that represent the overall sentiment of the price. If the price is trading above the moving average is it is an indication that buyers are controlling the price.

On the other hand, if the price is trading below the moving average, it means sellers control the price. Therefore, in your trading strategy, you should focus on buy trades if the price is above the moving average.

For example, the 20-day moving average is the mean average of the closing prices for the previous 20 days. It is one of the best free forex indicators, specifically one of the best free Forex scalping indicators.

In order to illustrate this better, we take a look at this daily EUR/USD candlestick chart:

As we can see from the chart above, the red line represents the 50-day moving average and the blue line represents the 20-day moving average, which is generally regarded as an important short-term technical indicator. The longer the time period for the moving average, the greater the lag. So, a 50-day moving average will have a much greater degree of lag than a 20-day MA.

A rising moving average indicates that the security is in an uptrend, while a declining moving average indicates that it is in a downtrend. Similarly, upward momentum is confirmed with a bullish crossover, which occurs when a short-term moving average crosses above a longer-term moving average. Conversely, downward momentum is confirmed with a bearish crossover, which occurs when a short-term moving average crosses below a longer-term moving average.

2. Relative Strength Index (RSI)

The Relative Strength Index (RSI) is an oscillator that is simple and helpful in its application, helping investors determine when a currency is overbought or oversold, so a reversal is likely.

The RSI can have a reading from 0 to 100 and traditional interpretation and usage of the RSI are that values of 70 or above indicate that a security is becoming overbought or overvalued and may be primed for a trend reversal or corrective pullback in price. An RSI reading of 30 or below indicates an oversold or undervalued condition.

The image below shows the 14-day RSI based on daily closing exchange rates in the indicator box below a candlestick chart of the exchange rate for the EUR/USD currency pair.

As you can see in the above chart, in an uptrend, when the price moves above the 70 levels, it indicates a bearish market reversal. Similarly, if the price moves below the 30 levels in a downtrend, it indicates a bullish market reversal.

3. Moving Average Convergence Divergence (MACD)

The MACD is designed to gauge momentum. Not only does it identify a trend, but it also attempts to measure the strength of the trend. The MACD indicator is made up of the single line, the MACD line and the histogram line.

As shown on the following chart, when the MACD falls below the signal line, it is a bearish signal that indicates that it may be time to sell. Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum.

If the MACD crosses above its signal line following a brief correction within a longer-term uptrend, it qualifies as bullish confirmation. If the MACD crosses below its signal line following a brief move higher within a longer-term downtrend, traders would consider that a bearish confirmation.

The MACD is simplistic and dependable. Not only are you able to view the robustness and potential turning point of the trend, but also how strong sell and buy signals are. This makes the MACD one of the best forex indicators for traders of all levels of expertise when it comes to an up-to-date illustration of market sentiment.