In Forex trading, a trader needs to learn technical analysis. And technical indicators are a big part of them. They are not complicated unlike the common notion. Technical indicators do not automatically mean profit rather they do a lot of work for leading you to profits. Technical indicators can help to find a trade idea and save time for market analysis as they are based on a mathematical formula.
Technical indicators are divided into several groups depending on their purpose. Here is a fair and simple explanation of the most popular ones by the best forex mt4 traders.
1. Moving Average
Moving Average follows the price indicating and identifying trends so that traders can follow the trend. It shows an average value of a price over a chosen time period. It does not predict the future price but instead outlines the current direction of the market. It is advantageous as it identifies a direction of a trend, finds trend reversals, while showing potential support and resistance levels.
But it lags behind the current price and that is a drawback as it will change more slowly than the price chart as the indicator is based on the past prices.
2. Bollinger Bands
Bollinger Bands measure market volatility meaning the degree of variation of a trading price. It is great in a sideways market when a currency pair is trading in a range. The lines of the indicator can be used as support and resistance levels, where traders can open their positions. But when there is a strong trend, the price can spend a long time at one Bollinger line and not go to the opposite one. As a result Bollinger Bands aren’t great for trending markets. It i not recommended by the experts.
MACD stands for Moving Average Convergence/Divergence. This indicator measures the driving force behind the market showing the trader when the market gets/ will get tired of moving in one direction and will need a correction. Technically, the MACD histogram is the difference between a 26-period and 12-period exponential moving averages (EMA) including a signal line (9-period moving average).