Forex Indicators – FX Guide

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It has been increasingly recognised that forex indicators are essential when trading on the forex market in Kenya. Many forex traders use this indicator to help them understand what the market is doing and when it is an appropriate time to buy or sell.

A forex indicator is a vital component of technical analysis, and every technical analyst or fundamental analyst should be familiar with them. In this article, we will show you the 10 most important forex indicators.

Considering how important indicators are to the forex market, every technical and fundamental analyst should know how most commonly used MT4 indicators work. These are the top ten forex indicators every trader should know.

What are forex indicators?

Forex traders in Kenya review various data on the next market’s platform before trading to predict how the market will perform and how it will change in the future. Traders who thoroughly analyse the market are likely to formulate more effective trading strategies and earn higher returns.

A forex indicator is a tool for examining market data. Indicators examine historical data, such as currency prices, volumes, and market performances, to predict how the market will behave in the future and predict patterns that are likely to recur.

Traders can make better decisions when equipped with this information, resulting in higher returns.

How do forex indicators work?

As a general rule, the best indicators for forex assume that past patterns will be repeated if conditions are similar. Forex indicators in Kenya search for patterns in specific market behaviour instead of seeing the currency market as a series of random events.

After repeated episodes of political instability, a currency may fall immediately after the fallout from a particular political crisis. In these cases, Forex indicators keep track of the information and use it to predict whether the same behaviour will occur.

The next market data provides traders with an insight into the factors affecting currency prices and the market as a whole, allowing them to trade accordingly on their accounts.

Top 10 Forex Indicators

Hand writing the text: Top 10

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Moving averages

Moving averages is a concept that every trader in Kenya should understand and be familiar with. Central banks and multinational companies are the primary drivers of the foreign exchange market. Thus, macroeconomic factors must be taken into consideration.

Among the forex indicators, moving averages average the prices of the last number of candles, representing the price’s overall mood.

Whenever the price is above the moving average, the price is under control by buyers.

Conversely, if the price declines below the moving average, then sellers control the price. Consequently, if the price is above the moving average, you should focus on buying trades in your trading strategy. This is a very useful indicator that every trader in Kenya should know.

Moving average indicator

Furthermore, the simple moving average helps traders understand the market context by showing the average of the last number of candles.

Conversely, the exponential moving average takes into account the most recent movement to help traders enter trades.

Relative strength index

Relative strength indexes are other types of forex indicators that range from 0 to 100.

They are used to predict when the price will change.

As the stock price moves over 70 levels in an uptrend, it indicates a bearish market reversal. Conversely, in a downtrend, a move below the 30 levels indicates a bullish market reversal.

RSI divergence indicator

RSI, on the other hand, can provide trading opportunities by creating divergences from the price.

MACD

The MACD – Moving average convergence and divergence – is one of the most widely used forex indicators.

The MACD is a trading indicator that combines a histogram with an exponential moving average. The main objective of this indicator is to calculate divergence with the market price. Regular divergence indicates a reversal in the market, while hidden divergence indicates an extension.

MACD forex indicators

It is often used as a primary indicator in the construction of trading strategies in Kenya.

The indicator can be used, however, for finding reversal points or continuation points in the market. Thus, you can implement a trading strategy based on other MT4 indicators to enter the trade.

Bollinger bands

Bollinger band is an indicator created by John Bollinger that is used in forex trading. Moving averages are the core of Bollinger bands.

Two standard deviations are seen on the upside and the downside, along with a traditional moving average.

A reliable trading entry can be obtained using this indicator since it is very easy to use.

Bollinger Bands indicator

Bollinger Bands indicator’s upper and lower lines serve as dynamic support and resistance levels.

If one of these levels is rejected, one can be considered for entry. A breakout from these levels in Kenya offers profit-making opportunities as well.

On the other hand, a close below or above the middle line suggests a potential next-level test.

Stochastic

In the early 1950s, stochastics was developed as a momentum indicator. This indicator is primarily designed to identify overbought and oversold conditions.

When developing their trading strategies, traders often have to consider a profit-taking area.

This forex indicator helps them determine where the price is likely to reverse based on its expected move. This indicator can move from zero to one hundred levels.

Stoch forex indicator

A move over the 70 levels will likely result in the price reversing. Alternatively, a price movement below 30 may result in a bullish reversal.

Ichimoku Kinko Hyo

The Ichimoku Kinko Hyo is a forex indicator in Kenya whose elements can be combined to create a complete trading strategy.

This indicator provides traders with several components that help them understand every aspect of the market.

A primary aspect of this indicator that helps to understand the market context is the Kumo Cloud. The overall trend is bearish if the price trades below the Kumo Cloud and bullish if the price trades above the Kumo Cloud.

Ichimoku forex indicator

Meanwhile, Tenkan Sen and Kijun Sen are two important components of this indicator based on moving average. A rejection from either line creates a trading entry, and these two lines move with the price.

Fibonacci

Fibonacci is an indicator of market direction in Kenya, which applies to all creatures in the universe as it shows the most accurate market directions.

Fibonacci’s golden ratio of 1.618 is the most important part of the tool. Traders identify market reversal and profit-taking areas by using this ratio in the forex market.

You can read more about how to use Fibonacci retracement while trading stocks here.

The price will probably move 161.8% Fibonacci extension level of the current leg if the price moves with a trend and corrects toward 61.8 Fibonacci retracements.

Fibonacci retracement indicator

In addition, there are other Fibonacci levels based on the market behaviour and momentum, like 23.6%, 38.2%, 50.0%, 88.6%, 127.0%,261.8%, etc.

Average true range

Indicators such as the true average range indicate how volatile a currency pair is. A measure of volatility is essential for the forex market as it directly reflects market movement.

An increase in volatility indicates the reversal of the market, and a decrease in volatility indicates its continuation.

ATR indicator

A lower ATR indicates a lower level of volatility, while a higher ATR indicates a higher level of volatility. So, in low volatility conditions, you can extend your take profit. Conversely, when volatility is lower, you may find reversal trade setups.

Parabolic SAR

The Parabolic SAR represents the market trend of a particular currency pair in Kenya. If the Parabolic SAR is above the price, there is a bullish trend overall. A price that is below the SAR, however, indicates an overall bearish trend.

Parabolic SAR indicator

This indicator helps traders identify trends. Furthermore, a market rejection from the Parabolic SAR indicator shows potential entry points.

Pivot point

The pivot point is an indicator of the equilibrium between supply and demand for currency pairs. If the price reaches the pivot point level, this indicates that the supply and demand of the particular pair are equal.

Price movements above the pivot point indicate a strong demand for the currency pair. In contrast, if the price drops below the pivot point, there would be a large supply.

Pivot point indicator

Before moving in any direction, price tends to move at the equilibrium level on the financial market. Therefore, this trading indicator in Kenya displays a potential trading entry upon rejection of the pivot point.

Most traders should know about forex indicators since they are important tools for trading. However, technical trading indicators are only as effective as the way you work with them. Many traders use multiple indicators with various parameters to increase their odds of making a market move.

Should you be using forex indicators?

Charts of financial instruments with various type of indicators for technical analysis on the monitor of a computer.

Traders and analysts aren’t the only ones who can handle technical instruments and complex data. The truth is that forex indicators can simplify voluminous and complex data, and anyone can benefit from them.

The indicators are an integral part of the decisions made by forex traders on their next markets accounts and form part of their daily routines. Therefore, understanding the market, its works, and the factors influencing it is crucial to making informed decisions.

Trading decisions based on past markets and using the previous currency patterns will be a great way to increase your returns and profits.

How do you access forex trading indicators?

The selection of indicators available on the next markets in Kenya can make it difficult to choose the most important or appropriate for your needs when making a trade. You can often use a variety of indicators to examine market behaviour and predict future market events, although when you’re first starting, you shouldn’t necessarily use each one of t

When working with the best forex broker, you will have access to many materials, such as forex indicators, forex signals, and a forex calendar.

By using multiple tools to create your trading strategy, you take more variables into consideration, providing you with a better view of the market’s performance.

Discover how to trade in the next markets

What is the best forex indicator combination?

Because every trader has different goals, the best forex indicator combination will differ among them. On the next market platform, you should use forex indicators that will contribute to improving your performance.

You can choose the most relevant metrics to your objectives from various forex trading indicators in your next market trades.

MT4 indicators and relative strength indexes in Kenya may benefit traders with a short-term strategy, while moving average convergence divergence and moving average indicators may be more useful for long-term investors.

Drawbacks of technical indicators that you must consider

Information overload

On trading platforms, you will find hundreds of different indicators. With all the different indicators and their promise to track or detect, it is not difficult for traders to become seduced. Many traders combine indicators over each other on their trading charts due to the abundance of indicators. It results in an overload of information.

When a trader tries to digest data from more than one indicator at a time, something is bound to go wrong no matter how good the indicators are. This is because even though the indicator may give timely signals, many other data and signals related to the open position will work simultaneously, making the trader slow to react.

Distractions

It is possible for traders to become distracted by indicators, especially when there are many. For example, certain traders in Kenya can become distracted by indicators on their trading screens.

By following these signals, traders can be compelled to pursue setups or exits that are harmful to their trading strategy.

Trading with too many indicators can lead traders to monitor their screens more than assessing their performance and formulating trade ideas.

Bottom line

There is the greatest divide between professional retail and institutional traders who rely on indicators and those who do not. Most retail traders in Kenya use at least a few indicators to determine entry and exit points with high probability. Moreover, traders tend to use a greater number of indicators when dealing with different time frames. This is because as the time frame gets smaller, the number of indicators gets larger. Traders with greater capitalisation are, however, less reliant on indicators because of their larger capitalisation levels.

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