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Home » Learning Center » Top 10 Technical Tools in the Forex Market
 
Top 10 Technical Tools in the Forex Market

Most traders new to currency trading tend to be technical traders. Thus, it is good to expose oneself to many of the technical tools available to new traders and find what best suits one’s unique trading psychology. The truth is that all of these indicators will work. They each have their pros and cons, but successful trading strategies can be built around each of them. The key as a trader is to find what best connects to your personality.
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10. Moving Averages
These are probably the most popular indicator in the FX Market. The major critique of moving averages is that they lag price. However, traders oftentimes combine moving averages and play moving average crossover systems in order to produce a leading indicator of possible change in price direction.

9. Bollinger Bands
This indicator has gained a huge amount of attention over the last 10 years. The goal of most traders is to find a potential change in price and take advantage by entering the market before the move gets under way. Bollinger Bands help do this by alerting a trader to possible changes in the supply and demand of the underlying currency pair.

8. Ichimoku Cloud
This Japanese-created indicator is intended to be used as an all-in-one technical indicator. It gives a trader trend direction, entry, and exit. It looks a bit overbearing when first placed on a chart, but with practice it can be a very powerful tool. This indicator is not yet widely used in the U.S., but it is commonly used in Japan, even today.

7. Volatility Indicator
Traders oftentimes find it beneficial to know what the current level of volatility is in the market. Average True Range is one volatility indicator that can help gauge this market phenomenon, especially during times of forex news events. Oftentimes a trader’s strategy will not perform better or worse in a high volatility trading environment, so tracking this phenomenon can be essential to maximizing profits and limiting losses.

6. Fibonacci Extensions
Fib Extensions do not get as much attention as regular Fib retracement levels, but they tend to be very reliable on certain currency pairs. The most common extension levels used by traders tend to be the 127%, 150% and 162% extensions.

5. Candlestick Price Formations
Price Patterns are a huge area of interest for most technical traders. Price patterns such as Head & Shoulders Patterns, Pennants, etc have been around for decades and these price patterns tend to be reliable technical indicators of possible trend reversals, or they can act as trend continuation patterns.

4. Average Daily Range
This tool can be extremely powerful for fading daily momentum back into a currency pair’s normal daily range. The Average Daily Range can be set over any number of previous days. However, intraday traders are generally helped most by the 10-day and 20-day averages because those best reflect current market conditions, while longer-term traders may be more interested and benefited by looking at the 60-day or even 100-day averages.

3. Fibonacci Retracements
Fibs are incredibly popular in currency trading; thus, one of the reasons they are so accurate is the herd effect—so many people are using them, they are bound to carry some level of reliability. The most common fib levels are the 38%, 50%, 62%, and 79%.

2. Individual Candlesticks
Human psychology is what drives markets and sets prices in financial markets, and candlesticks are powerful tools to help convey the underlying human psychology that is ruling the market. A trained eye can use candlesticks to determine momentum, volatility, potential trend reversals, or trend confirmation.

1. Horizontal Support/Resistance
Levels that have acted as strong support/resistance over time will continue to offer traders signals as to possible future price reversals and breakthroughs. It is a mystery how a price level can act as support/resistance for decades, but they do.



 

 


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