In this article, we’ve listed the best forex indicators for beginners that you need to know about.
We’ll also take a look at which ones are the best for a scalping strategy and for an intraday trading strategy.
All these indicators can be found in every type of trading platform whether it’s a broker’s self-developed one or the MT4.
If you’re just starting with your trading career, it’s better if you read this article before making any type of errors:
What does Forex mean?
Forex stands for Foreign Exchange and this is the exchange of currencies. The forex trading volume is between 3 and 4 trillion US dollars per day.
The most important traders in forex are large international banks and financial institutions, but now more private investors are also involved.
Forex trading takes place on online broker platforms. Here forex traders speculate on rising or falling rates for certain currency pairs. The main currency pairs are normally traded, which usually includes the EUR/USD or the currency pair CHF/USD for instance.
There are 7 main currency pairs to trade with and these are known as the ‘majors‘.
Over 85% of all global forex trades happen on these 7 currency pairings:
The most popular pairing is EUR/USD.
Forex Indicators & Trading Strategies
If you’re new to trading you should always look out for a free demo account to use. A demo account is a great way to learn forex trading from scratch. This can help you to develop a successful forex trading strategy.
Free demo accounts are a great tool for all traders to use, especially when trading as a beginner. Nearly all brokers will offer free demo accounts so that forex traders can get used to the trading platform.
It’s also a good way to learn more about the various forex indicators.
The demo account will come with an amount of virtual funds for traders to spend. This removes the pressure of losing real money whilst trying the various forex indicators.
By doing this you can find the best forex indicator and trading strategy that meets your trading needs.
As well as free demo accounts, most brokers will offer personal account managers that can assist you. They’ll be able to answer any trading or platform based questions directly.
Forex Indicators & Platform Functionality
It’s important to know how your selected forex trading platform functions. This is so you can get the most out of all the tools and features.
For example, with even the best type of online platform, the performance won’t be very good if the numerous indicators and trading tools are not properly set up.
A forex strategy that uses different types of indicators will provide you with objective trading signals. These can be set up either manually or automatically.
The best forex indicators can be used for very different strategic approaches.
Each performance of these types of strategies are measured using a few key figures.
Modern chart programs contain many, often 100+ forex indicators types. An indicator has specific features that are considered important in terms of future market performance.
The 5 Best Forex Indicators for Beginners
In order to explain the benefits of the different forex indicators, we’ll briefly introduce you to the 5 best Forex indicators for traders. We will also briefly explain how they work:
1. Bollinger Bands
Traders determine the current market volatility with the Bollinger Bands. When there’s low market volatility, the bands narrow. With increasing volatility, they expand accordingly.
The outer edges of the Bollinger bands can also be used as support and resistance lines.
Another popular indicator is the MACD, this indicator is widely used by Forex traders.
MACD stands for Moving Average Convergence Divergence. To work it needs the input of Moving Averages, which is why it’s in the category of lagging indicators.
The function of the MACD is to recognise new trends as well as identifying the end of trends. There are many ways to evaluate the generated signals provided by MACD. However, each trader can apply their own methods and settings to this forex indicator.
3. Parabolic SAR
The Parabolic SAR strategy (SAR = Stop And Reversal) is based on finding the points above or below the current price. Forex traders use these points to determine the trend reversal and stop loss.
On a chart the parabolic SAR indicator appears as a sequence of dots, normally below or above an asset’s price. Of course, it all depends on the movement of the price.
So when a price is moving upwards a dot is fixed below the price, or above the price when value is going down.
The SAR works best in trend markets.
4. The Moving Averages
Indicators can be roughly subdivided into two types:
- trend-following indicators
The simplest (trend following) indicator is a simple moving average with n periods. To calculate it, the last n period-end closing prices are added together and divided by n.
Moving averages in this form are smooth trend lines, but offer a big advantage over them: they can be integrated into trading systems.
The final forex indicator we want to mention is the Relative Strength Index. The RSI indicates overbought and oversold market conditions.
Besides this the RSI can also be used as a trend confirmation. If the price moves above the 50 marks, there is an uptrend. Or if the price falls below the 50 marks it is a downward trend.
Generally the five most popular forex indicators are the MACD and the RSI.
However many traders also use the Parabolic SAR and the Bollinger Bands.
Each of these forex indicators can help to provide a better overview of different market situations.
Most importantly they can help you to develop promising trading strategies.
Best Forex Indicators for Scalping
Scalping (to scalp) is a trading method based on real-time technical analysis.
The main goal of a forex scalping strategy is to achieve small profits by buying (long) or selling (short) currency pairs over a very short period. Often it only takes from a few seconds to minutes.
Scalping can also be applied to other instruments like CFDs.
Examples of how the scalping strategy can work:
Imagine that you open a long position with EUR/USD. The spread is 2 and the stop loss is 10 pips.
After 30 seconds, the position reaches the target profit mark of 3 pips. You manually close it so you can take the profit of 3 pips.
Now imagine that you open a short position with the currency pair GBP/USD. The spread is 3 and the stop loss is 10 pips. In this case, your target profit is 4.5 pips. Let’s say that the trade is not going well, so the position is automatically closed by the stop loss, then you would have lost 10 pips.
Forex Indicators when scalping
As well as the normal charting technique, scalping also involves relying on a few indicator types to generate buy or sell signals.
You can use a single indicator in addition to the chart analysis. This will help you to confirm a signal or to generate a buy or sell signal. Some indicators that are good for scalping are:
- Moving Average Indicator
- RSI indicator
- Stochastic indicator
- MACD indicator
Scalping strategy with the RSI indicator
Let’s also give you an example on how to apply the scalping strategy using indicators like the RSI Oscillator.
Imagine that trading takes place in the M1 (1 minute) to M5 (5 minutes) chart. Set the RSI indicator to the following values: 14; 70; 30.
However, these values are already present in most types of trading platforms. To easily recognise the chart features, we recommend setting the chart to candlesticks.
Now watch the chart and wait for the RSI indicator to signal the over-bought or oversold market in the selected time slot.
If the price breaks the 70s range of the indicator, it means that the market is overbought.
When the indicator leaves the overbought area, close the trade.
The take profit brands are difficult to specify as they are heavily dependent on the trade and time frame chosen. In the 5-minute chart, a profit of 5 – 10 pips should already be taken or hedged.
You should always keep an eye on the higher-level time slots and pay attention to possible areas of support or resistance.
To make it even safer, the forex RSI indicator can also be set to the values 80 and 20. Although fewer forex signals are generated, the reliability of the signals increases for it.
Best Forex Indicators for Intraday Trading
Most traders are looking for a classic intraday strategy that can deliver good performance with relatively low risk and short duration.
The Intraday Reversion Strategy for the DAX Future is a very good option.
The residence time is a maximum of 30 minutes. This means that there’s no risk of overnighting and the hard stop-loss makes other risks manageable.
You may want to use this strategy in order to build a well-diversified portfolio.
The Approach of Intraday Reversion Strategy
The first task is to locate a period of weakness in the price performance of the DAX Future (FDAX). For this, we look back from the current 30-minute candle to three 30-minute candles.
Now compare the lowest price of these three periods with the lowest price of the next candle.
The first condition is met if the course of the follower candle is deeper. If a further low is marked on the following candle, the second condition is fulfilled.
That’s why there must be a series of two consecutive lows in the 30-minute chart of the FDAX.
After this, the next condition of the intraday reversion strategy can be addressed.
Best Forex Indicators for Intraday Strategy
For the Intraday Strategy there are 2 type of indicators used:
- Moving Average (simple moving average, short-SMA) with a period setting of five.
- Average True Range (ATR) with a period setting of 140.