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Forex Indicators That Really Work

First of all, there is no such a thing as “Forex Indicators”. Forex doesn’t have any special indicator. All the indicators you see, have been invented by the professional stock traders. However, almost all of these indicators, at least as far as I know, can also be used to trade the other markets, including Forex.

There are so many indicators that their developers and investors believe that they are the best. Novice traders think that indicators are some magic prediction tools. But the fact is they are all taken from the price. So it is the price movement that is the first and most important indicator in any market, including Forex.

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What Are the Best and Most Important Useful Forex Indicators?

There are so many professional traders who use nothing but the price movement. Some of them even don’t use candlesticks or bars. They use simple line charts and trade based on the fundamental, price actions and support/resistance breakouts. They believe candlesticks or bars, make the work too complicated. I have seen so many good, professional and consistently profitable traders among them and I strongly believe what they say is true.

1. Line Chart

So the first Forex indicator is the price line chart. If you want to learn how to trade, I suggest you to take a look at the price chart and try to understand what it means first. Plot the support and resistance lines and levels and see how the price has reacted to them, both before and after the breakout. That is the best way to understand the price movement:

Line Chart Is the First an Best Among the Forex Indicators

Some other traders believe that the price is not an “indicator”. An indicator has to be calculated based on the price to give more data using the price movements. For example a moving average can be known as an indicator.

I don’t care about these kinds of definitions and rules. I care about the things that are important and make a difference. While I believe that the price is the first and most important indicator both in stock and Forex trading, I believe that you can use some more tools like candlesticks or bars that help you have a better understanding of the price movements.

2. Candlesticks and Bars

Candlesticks are very strong tools. I don’t care if they can be known as indicators or not. Something that matters is that they give a lot of invaluable information about the mentality of the markets main participants. They can tell you who has taken the market’s control at the end of a period or time-frame. And, this is very important to take a proper position, or stay away from the market, during the next period.

Bar chart also gives the same information as the candlestick charts. But most traders prefer candlesticks because they are easier to watch, analyze and digest, just because of the special shape and appearance they have.

So, after the line chart, candlesticks are the best Forex indicators. They are specially the best for Forex traders because the Forex market is so liquid and continuous. Price gaps make using the candlesticks a little harder. While you see so many price gaps on the stock market, there are usually very limited gaps on the Forex market sometimes because of the weekends.

We have so many articles focused on candlesticks on this website. I recommend you to read them carefully.

Candlesticks Are Good Forex Indicators

A trader has to use one of the charts I explained above. You either have to use the line chart, or candlestick and bar chart. That is the base of trading and technical analysis.

However, some traders are used to add some other indicators to their charts. Many of these indicators are also very useful, but many of them are nothing but more confusion and headache. There are some indicators that repaint and redraw when the price moves. There is no doubt that you have to avoid these kinds of indicators.

3. Bollinger Bands

After the line or candlestick and bar chart, Bollinger Bands is one of the most favorite indicator both for Forex and stock traders. Bollinger Bands is a strong tool among all the other Forex indicators, because it tells you whether the market has the maximum deviation from the average or not. This means Bollinger Bands tells you when the dominant party is exhausted and the market is overbought or oversold. Above all, the breakouts that the price, specially the candlesticks, form with Bollinger Bands, are strong patterns for taking the reversal trade setups or signals.

So, Bollinger Bands is a strong and important Forex indicator.

Bollinger Bands Is a Strong and Popular Forex Indicator

4. MACD

MACD, specially MACD Bars, are among the most popular indicators for the stock traders. As online Forex trading has been introduced to the public by the stocks traders, MACD is a popular and strong Forex indicator too. It is one of the most popular Forex indicators.

The good thing with MACD is that as it is delayed, it stops the novice traders from over-trading and entering the markets while there is no real and strong trade setup. So if you are a novice Forex trader, I recommend you to have MACD on your chart and confirm your trading strategy trade setups with MACD.

MACD Divergence and Convergence are some strong chart patterns and events that help a lot to confirm the other trade setups like support and resistance breakouts.

MACD Is an Important Forex Indicator

5. Stochastic Oscillator

Most retail stock traders love the Stochastic Oscillator indicator. This indicator shows you the price speed and momentum, and so, it is an important indicator to help you understand when and where there is a higher probability for the price to turn around. However, there is a very special way to use this indicator that if you don’t know it, it can cause you to have so many losing positions.

Indeed, Stochastic Oscillator is the important cause of some Forex traders losses, because they don’t know how to use it properly. But it is a great Forex indicator if you know how to use it.

Stochastic Oscillator + MACD + Bollinger Bands

6. Relative Strength Index or RSI

Relative Strength Index or RSI is the last indicator in my Forex indicators list. Of course we use Pivot Levels too, but they are some price support and resistance levels and I don’t want to consider them as indicators.

RSI is a very special indicator that looks very different from the others. It not only forms the patterns like RSI Divergence and Convergence, but also it forms support and resistance lines and levels, and so, support and resistance lines and levels breakouts. The good thing is that sometimes these breakouts form before the support and resistance breakouts on the price chart, which means RSI can sometimes tell you in advance that the support and resistance line or level you have on the chart is about to become broken.

All Important Forex Indicators on One Chart

Now, I am going to show you a trade setup that is formed on GBP/AUD weekly chart. I want to show you how the above indicators confirm a resistance level breakout. However, I remove Bollinger Bands because it doesn’t help in case of this trade setup. Please refer to the below chart.

I have the most popular Forex indicators on the below chart: Candlesticks, Stochastic Oscillator, MACD Bars and RSI

As you can see, there is a resistance level at 1.7203 that is broken by 2017.04.23 weekly candlestick. It means this candlestick has closed above the 1.7203 resistance level.

At the same time, Stochastic Oscillator is in overbought area which is a good confirmation for the validity of this resistance level breakout. This is how you can use the Stochastic Oscillator. You have to use it as the confirmation of the price actions like support or resistance breakouts. To confirm price actions, this Forex indicator is in oversold or overbought area respectively. Using this indicator when it is moving between the 80 and 20 lines is risky.

MACD bars have been going up long time before the 1.7203 resistance level breakout. They broke above the zero level when the next candlestick opened. This is also a big confirmation indicating that bulls have taken the control.

Long time before 2017.04.23 weekly candlestick closed above the 1.7203 resistance level, RSI had broken above the 50 level and also a resistance level it had formed a little below the 50 level.

It means all of these strong and important Forex indicators have confirmed the 1.7203 resistance level breakout that is formed by 2017.04.23 weekly candlestick:

All Forex Indicators on One Price Chart

As a Forex trader, you can use all of these indicators the way I explained above. When all of them line up to confirm a price action like support or resistance breakout, it means a good and strong trade setup is formed. But you have to learn how to use these Forex indicators to confirm the price actions. I mean you have to know the best confirmation that forms by these indicators, otherwise you would only think that the price action is confirmed while it was not.

The other important thing is that having all of these strong Forex indicators and using them the best possible way, is one thing, and limiting and managing your risks is another important thing. You should never take more than a 2% risk even when everything looks great on the chart and all your Forex indicators confirm the strength and validity of the trade setup.

The last but not the least, is something that I always emphasize on, because you can’t make money through Forex trading, even when you have mastered to use all the Forex indicators and you know how to locate the best price actions and trade setups. The reason is that mastering the trading strategies don’t work when you don’t have a proper living strategy. Never ignore this important fact: Trading Strategies Don’t Work If You Don’t Choose the Right Living Strategy

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6 thoughts on “Forex Indicators That Really Work
  1. fawaz bamakrait says:

    thanks chris i really missed your articles a lot, because i am busy with the DT training course but i am working hard on it as much as i can, i am looking foreword to get my goal successfully achieved, thanks a lot my friend i always learn a lot from you , became kind like a habit to me 90% or more got my self disciplined to high success rate set up or not to trade. that’s leads me to focus on the other online business.

  2. moaied suhail says:

    thank you dear Chris for this full strong article, very conffirmative .

  3. Ben Aqiba says:

    Hi Chris,

    great article.About gap,how is created this gap on NZDCHF daily chart, in the middle of the week ?
    https://charts.mql5.com/14/992/usdcad-d1-pro-financial-services.png

    Similar gap is formed on NZDCAD daily time frame.
    I thought that gap is possible only during the weekend,when the market is closed for us.

    Thank you

  4. Maurice Parchment says:

    Dear Chris,
    Thank you for this article 🙂

  5. Hyder says:

    excellent and informative.

  6. Raphael says:

    I agree with all of this. I was impressed when I first found this site months ago and to my surprise found out all the indicators recommended I have used in one form or another.

    Usually I prefer to use modified versions or customs versions either I made myself or someone else’s.

    By far, the best indicator is price movement itself because that is the only way a speculator makes money.

    Price extremes for reversals using bollinger bands in combination with candlesticks are in particular useful for obvious reasons.

    One thing I would add in indicatorville is volume even though the pure volume is not 100% accurate in but if you use the correct volume indicator you might get even 80-90% accuracy which is still useful.

    In other words, even though price itself is good enough, it is only half the picture without price AND volume analysis.

    You can also go to the regulated futures exchange for real volume analysis since they are required to tell the truth.

    Another thing, I much prefer offline charts now a days for noise reduction.

    Support/resistance is always useful as well as daily pivot points.

    I will also say indicators are useful if used correctly but since they are base on past data they lag and can fail but less often.

    The concept of divergence is also very useful but just realize markets can continue in a trend for much longer than you think depending on conditions in fundamentals.

    Multiple time frame analysis is another useful trick. And of course a simple correlation analysis for relative strength is again useful.

    For example, a strong trend is similar to a shipping container boat where you have to start applying the breaks 5 miles before actually docking.

    Of course, the best idea is to keep it a simple as possible with all of the above recommended methods and that is subjective on a case by case basis 🙂