Every Forex trader knows that he must supplement the information on his charts with a series of technical indicators. Commonly used indicators include strength indicators, volatility indicators, trend indicators, and cycle indicators. These indicators not only help us determine where the market is moving, but also when a trend is about to end and we should exit the trade or, with a good signal, reverse the trade.

The following 6 indicators are the most used among Forex traders:

• Stochastic Oscillator – The Stochastic Oscillator helps a trader determine the strength or weakness of a currency by comparing the closing price to a range of prices over a period of time. When the trader identifies a stochastic high, that currency may be overbought and you should go short or bearish. In contrast, a stochastic low indicates that a currency may be oversold and should go bullish or long.

• Bollinger Bands – Bollinger bands contain most of the price of a coin between the bands it displays. Each band has three lines: the lower and upper lines show the price movement and the middle line shows the average price of the coin. When the market experiences high volatility, the gap between the upper and lower bands will increase. On your candlestick or bar chart, the currency is considered overbought if a bar / candle touches the upper band and oversold if the bar / candle touches the lower band.

• Average Directional Movement (ADX) – The ADX is used to determine whether a currency is entering a new uptrend or downtrend. The ADX is also used to determine how strong the trend is.

• Relative Strength Indicator (RSI): RSI uses a scale from 0 to 100 to indicate the highest and lowest prices over a period of time. When the prices of a coin rise above 70, the coin is presumed to be overbought. On the other hand, a price below 30 would likely indicate that a currency is oversold.

• Simple Moving Average (SMA) – The SMA is the average price of the coin over a given period of time compared to other prices during the same time periods. To illustrate how the SMA works, the closing prices over a 7-day period will have an SMA equal to the sum of the 7 previous closing currency prices divided by 7.

• Moving Average Convergence / Divergence (MACD) – The MACD is another oscillator that shows the momentum of a currency relative to the two moving averages. As we discussed in previous articles, when MACD lines cross, that cross may indicate the start of an uptrend or a downtrend.