In this article, we will list the best Forex Indicators for beginners and 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 is a private one or on the mt4.
If you are starting now with your trading career, it’s better if you read this article before making any type of errors!
What is Forex?
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, which is why traders cannot realize such high sums compared to other financial instruments.
The most important traders in forex are large international banks and financial institutions, but now more and more private investors are involved.
Forex trading takes place on online broker platforms, where forex traders speculate on rising or falling rates for certain currency pairs. Most often the main currency pairs are traded, which usually includes the EUR/USD pair for instance or the currency pair CHF / USD.
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: EUR/USD, USD/JPY, GBP/USD, AUD/USD, NZD/USD, USD/CAD and USD/CHF. The most popular pairing is EUR/USD.
Demo Accounts & Trading Strategies
Novice traders should always look out for a free demo account to use so that they can learn Forex trading from scratch. This can help to develop a successful forex trading strategy.
Free demo accounts are a great tool for all traders to use, especially at the start of their trading journey. Nearly all brokers will offer free demo accounts so that forex traders can get used to the trading platform and learn more about the various forex indicators.
The demo account will also come with virtual funds for traders to spend. This removes the pressure of losing real money whilst testing out and trying the various forex indicators. By doing this a trader can find the best forex indicator and trading strategy that fulfils their trading needs.
As well as free demo accounts, most brokers will offer personal account managers so that they can answer any trading or platform based questions directly.
Trading Strategies & Platform Functionality
It’s important to know the extensive functionality of the selected forex trading platform really well so that the full potential can be exploited. For example, the best type of online platform will not do much good if the numerous indicators and trading tools are not properly set up.
A forex strategy using different types of indicators provides objective trading signals and can be implemented either manually or automatically. The best forex indicators can be used to pursue very different strategic approaches.
Each performance of these types of strategies is measured using a few key figures. The core of all forex indicators is derived from the price value, which is updated over a longer period of its own line and can be graphically displayed with a chart program.
Modern chart programs contain at least a few dozens, often even several hundred types of forex indicators. An indicator has certain characteristics that are considered significant in terms of future market performance.
The 5 Best Forex Indicators for Beginners
In order to explain the benefits of different forex indicators exactly, we now briefly introduce the five best Forex indicators for traders and briefly explain their function.
1. Bollinger Bands
Traders determine the current market volatility with the Bollinger Bands. In low market volatility, the bands narrow, with increasing volatility they expand accordingly – in addition, the outer edges of the Bollinger bands can also be used as support and resistance lines.
We have already explained the function of the MACD extensively, but also this forex indicator belongs to the best indicators of the traders. They can use it to recognize trends and trend reversals early and to react accordingly when trading forex, as soon as one of the MAs crosses the other.
3. Parabolic SAR
The Parabolic SAR strategy (SAR = Stop and Reversal) is based primarily on points above or below the current price. Forex traders use these points to determine a trend reversal and stop loss. The SAR works best in trend markets.
4. The Moving Averages
Indicators can be roughly subdivided into two types:
- trend-following indicators
The simplest conceivable (trend following) indicator is a simple moving average with n periods. For its calculation, the last n period-end closing prices (sometimes or, in the case of corresponding parameter settings, also mean, high or low prices) are added together and divided by n. Moving averages in this form are smooth trendlines, but offer a big advantage over them: they can be integrated into trading systems.
We have also seen the Relative Strenght Index: The RSI also indicates overbought and oversold market conditions, similar to the Stochastic, but in addition, the RSI can also be used as a trend confirmation. If the price moves above the 50 marks, there is an uptrend, with a price below the 50 marks a downward trend accordingly.
Of course, the five most popular forex indicators are the MACD and the RSI we mentioned earlier, but traders are also convinced of the Stochastic, the Parabolic SAR and the Bollinger Bands. Each of these forex indicators can help to provide a better overview of different market situations and help 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 objective of a forex scalping strategy is to achieve small profits by buying (long) or selling (shorting) currency pairs (or even other instruments like CFDs) over a very short period. Often it only seconds to minutes.
Examples of how the scalping strategy can work:
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. Close it manually to take the profit of 3 pips.
They open a short position with the currency pair GBP / USD. The spread is 3 and the stop loss is 10 pips. In this case, the targeted profit is 4.5 pips. Assuming the position is against you and closed by the stop loss, you would have lost 10 pips.
Indicators when scalping
In addition to the normal charting technique, scalping naturally involves relying on a few types of indicators to generate buy or sell signals. One can use a single indicator in addition to the chart analysis to confirm a signal or combine several indicators 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
This is an example strategy on how to apply the scalping strategy using indicators like the RSI Oscillator.
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. For easier recognition of 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 prices break the 70s range of the indicator, it means that the market is overbought. Now one waits, whether the course a moment in the overbought area (thus over 70) hold.
As soon as the indicator leaves the overbought area. 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. Conversely, long goes when the price moves oversold for a while and then leaves the 30’s range at the top.
In both scenarios, one 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 beats right in that score.
The residence time is a maximum of 30 minutes. There is, therefore, no risk of overnighting and the hard stop-loss makes other risks manageable. Additionally, this strategy is ideally suited 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 in the following candle, the second condition is fulfilled.
Simply put, there must be a series of two consecutive lows in the 30-minute chart of the FDAX. Subsequently, the next condition of the intraday reversion strategy can be addressed.
Best Forex Indicators for Intraday Strategy
Let us now turn to the type of indicators used. The strategy uses two indicators:
- Moving Average (simple moving average, short-SMA) with a period setting of five.
- Average True Range (ATR) with a period setting of 140.