Two of the Best Forex Indicators are: Bollinger Bands and Fibonacci Retracements.
Forex trading is a fascinating way of earning a living online, and if you are seriously considering entering this amazing world of Forex or Stock trading you must consider, by all means, the learning and understanding of a number of indicators that will give you invaluable help on predicting with a high probability the directions the forex market may take as you carefully analyze the price charts for any currency you are trading at the moment. Two of these important indicators are the Bollinger Bands and Fibonacci Retracements however it is important to note that there are others that will help you as well like the MACD and the RSI.
The basic interpretation of Bollinger Bands is that prices tend to stay within the space formed by the tracings of the upper and lower bands. The distinctive characteristic of “Bollinger Bands” is that the spacing between the bands varies based on the volatility of the prices.
During periods of extreme price moves for example high volatility, the bands widen to become more forgiving. During periods of low volatility, the bands narrow to contain currency prices. The bands are plotted two standard deviations above and below a simple moving average or SMAS.
They indicate a “sell or short” when prices are above the moving average (or close to the upper band) and a “buy or long” when prices are below it (or close to the lower band). The bands are used by some forex traders in conjunction with other analyses, including RSI, MACD, RCI, and Rate of Change and many more.
“Fibonacci retracement levels” or also call “Fibs” are a sequence of numbers discovered by the noted mathematician Leonardo da Pisa during the twelfth century. These numbers describe cycles found throughout nature and when applied to technical analysis can be used to find pullbacks in the currency market.
“Fibonacci retracement levels” are a quite effective way to see the future (at least in the Forex and Stock markets) because it involves anticipating changes in trends as prices near the lines created by the Fibonacci studies. After a significant price move (either up or down), prices will often retrace a significant portion sometimes all of the original move. As prices retrace, support and resistance levels often occur at or near the “Fibonacci Retracement levels”, watch the video below to learn how to add the Fib indicator if you use Oanda to trade Forex.
In the currency markets, the commonly used sequence of ratios is 23.6 %, 38.2%, 50% and 61.8%. Fibonacci retracement levels can easily be displayed by connecting a trend line from a perceived high point to a perceived low point. By taking the difference between the high and low, the user can apply the % ratios to achieve the desired pullbacks.
Always remember that indicators are just that, they indicate previous price movements based on history, even though they can aid Forex traders they are not a crystal ball that will predict future movements, always make sure to combine your technical analysis and your Economic fundamentals to help you determine if the trade that you are taking will be profitable.
If you want to learn more about Forex make sure to visit Baby Pips, a great free resources for new and experience traders.