Lesson 15: Different types of indicators for technical analysis of Forex

We have already distinguished between graphic analysis (Chartism) and indicators. In this lesson, we will clarify this classification by presenting you the different types of technical indicators that can be used in forex trading.

The oscillators

Above all, one must understand the psychological interpretation of these indicators.

The basic principle of oscillators is to assume that there is an equilibrium point at every moment and that when the prices are going to tend too far away, they will have a good chance of coming closer. This "balance point" can be considered as the center of gravity of the course.

The oscillator is a bounded indicator that evolves between two distinct thresholds. Indeed, it is possible to define so-called "overbought" zones and so-called "overselling" zones.

When the price will be represented in the area of ​​over-purchase of an oscillator, it is that according to the indicator, the price is too far upward to its equilibrium point.

It will be customary to say that, generally, representations in an oversold zone will encourage the investor to position himself for the purchase, and conversely, when the indicator represents the price in the overbought zone, traders will be encouraged to Position for sale.

Example of oscillators: CCI, RSI

Trend monitoring indicators

These indicators will give you information about the state of the current trend, you will be able to determine it but you will also be able to evaluate the strength of the movement in progress. Logically, they are generally used to filter out noise on the courts to make a clear move. It is customary to pair them with another filter in order to obtain an input signal.

The best-known trend-tracking indicator remains the moving average.

This indicator applies directly to the courses and allows to draw a lot of information. Moving averages can be used to determine potential high and low points of the price, they can also help anticipate trend shortness.

Volatility indicators

These indicators will help you anticipate accelerations or simply determine that the market is too "quiet" to be positioned.

It is important to remember one fundamental thing: Do not trade, it is also trader.

The idea is clear, without volatility you can switch to another chart, the signals seen on other indicators will have very little impact on the price since without volatility the price will not oscillate enough to Allow you to make profits.

Example of volatility indicator: Bollinger Bands

The volume indicators

These indicators will allow you to evaluate the strength of the current movement by its volume of transactions. The more volume is observed during an oscillation, the more the movement in progress will be "strong" and therefore difficult to divert.