Different Types of Indicators and What They Do

Various indicators have made our life easier as forex traders. For the starters, it is almost impossible to understand the charts. Luckily, lots of indicators are out there for making sense of these bars and sticks. Like my forex broker, most brokers provide a free trading guide for their clients, which include detailed instructions about these indicators.

Following countertrend approach is one way of making money on the forex market. But, most of the traders follow the trends and try to make profit out of the trend. For this purpose, trend-following indicators are very popular among the forex traders. Moving Average is one of the simplest and most useful trend-following indicators.

Another popular type is the trend confirmation indicators. These indicators help the traders to decide whether the trend has established itself or not. Moving Average Convergence Divergence (MACD) is a very popular trend confirmation indicator. Experienced traders use both trend-following and trend confirmation indicators for making their decisions.

Some indicators show the overbought or oversold status of the currency pairs. Buying into weakness or buying into strength is determined by these indicators. A 3-day Relative Strength Indicator (RSI) is a perfect example of such indicators. Experienced traders tend to longer time RSI for better understanding of the market.

Another important indicator for the forex traders is the profit taking indicators. These indicators help the trader to decide when to exit the trade and take the profit. Bollinger Band, Average True Rane (ATR) etc. are some common examples of profit taking indicators.