Most Forex retail traders will use some form of technical indicator in their trading careers. In this short article, I’m going to review the 4 most common types of technical indicators.
Trend Indicators
Trend indicators indicate the persistence of price movement in one direction over time. Trends can only occur in three directions: up, down or sideways. They are one of the most common indicators used by traders today. You may have heard the phrase “Trade with the trend”, and that’s how trend indicators are typically used.
The good thing about trend indicators is that they smooth out short-term price fluctuations (or “noise”), and enables a trader to focus on trading in the overall direction of where market prices are headed.
Volatility Indicators
Volatility is a general term used to describe the magnitude (or size) of market price fluctuations. Unlike trend indicators, volatility indicators don’t take into account the directional movement of market prices: you can have highly volatile fluctuations no matter the direction of the trend.
Support/Resistance Indicators
Support and resistance indicators describe the price levels at which market price action tend to reverse. In an uptrend for example, prices may tend to reverse downward at resistance levels. The opposite is true for support levels.
Support and resistance occurs due to the dynamic interaction between buyers and sellers.
Momentum Indicators
Momentum is a general term that describes how quickly prices move over a given time period. In essence, momentum indicators measure the strength (or weakness) of a trend. Thus, momentum indicators are often used in conjunction with trend indicators.
Momentum is typically largest at the beginning of a trend, and grows weaker and weaker until the trend eventually reverses.
To learn more, download my free 26-page guide here:
"Forex Trading Traps!"
Harold Hsu is the owner of http://ForexSystemProfits.com where he provides premium Forex trading information and resources.
