Forex Indicators, put simply, are various indicators used to find patterns in the currency market. Forex indicators try to pinpoint price data, which is an invaluable tool to a currency market trader. Using an indicator alongside various other market analysis techniques is a good way to watch your money grow, as well as protect it from market volatility.
The goal of a investor who is trying to find out which indicator is the best should be to rather find out which indicators he should group together to create the best set of indicators. Two of the most popular Forex indicators are Moving Averages and Stochastic Indicator. Typically, indicators that are based on currency strength are relative currency strength and absolute currency strength. Combined, these two indicators are known as a Forex flow indicator, because the entire currency flow of the forex market is visible on a single chart, thereby greatly simplifying and streamlining the market analysis process for the investor who is using the absolute and relative currency strengths as Forex indicators to aid in his or her investment process.
2 very popular indicators on Forex Indicators Explained:
-Moving averages
Moving averages (MAs)have two parts to them.
You can have quick moving averages (5-period) or slow ones (200-period). The most popular ones are the 50, 100, and 200 simple moving averages.
MAs are used to identify trends. If the price is below, it is a sign that the market is trending down.
-MACD
MACD stands for moving average convergence / divergence. MACD is used to identify trend changes. It contains two averages (one slow and one fast). When the fast average crosses the slow one, you start looking for a trade.
For forex indicators explained, one needs to include economic factors. GDP growth is the most prevalent economic indicator. It reflects the change in the gross domestic product, or an economy’s total value of its output which is the goods and services it produces. Although GDP growth shows the change in economic output, it should not be viewed in isolation.
Industrial production is an indicator of manufacturing growth and is particularly relevant for strong manufacturing based economies. An engaged and productive population growth is ideal for maintaining a strong currency.
Unemployment also affects consumption. Retail sales are, therefore, another economic indicator. Retail sales is the sum total of major broad line retail receipts. As forex indicators go, these economic indicators need to based on apples to apples comparison, therefore, one needs to account for the cost of inflation. The CPI, or consumer price index, is a very good indicator of inflation.