Technical analysis is one of the most reliable and time-tested techniques for predicting price movements in the foreign exchange market. While technical analysis can be incredibly reliable in predicting market movements, it is a broad and subjective topic with many factors to consider.
When all online trading platforms are loaded with dozens, even hundreds of technical analysis indicators, it can be difficult to choose the best indicator for forex trading. Traders often get caught up in determining which ones technical analysis indicators they are more accurate, consistent and reliable for forex trading.
Many traders think that a currency indicator is accurate or inaccurate, but the effectiveness of an indicator is not a binary result. The effectiveness of an indicator depends on how it is applied to conduct technical analysis and user error is the main reason for the negative results.
This guide explores the three most accurate forex indicators and how to make sure you get the most out of these tools.
- Types of currency indicators
- Proven Forex indicators
- Currency indicators in MetaTrader 4
- List of MT4 currency indicators
- Find the most accurate currency indicator
Types of currency indicators
Although there are hundreds of variations of forex indicators, they fall into four main categories; indicators of trend, volatility, volume and oscillator.
The 3 most accurate Forex indicators are:
- Simple moving average
- Bollinger Bands
- Parabolic SAR
Currency trend indicators
Trend indicators identify the presence or absence of trends and their direction.
You can observe trends in different time periods of the chart, as a currency pair could be trending upwards on the daily chart, but downwards on the 15-minute chart.
Simple moving average, parabolic SAR and cumulative swing index are accurate forex indicators to determine market trends.
Currency momentum indicators
Oscillators are a family of indicators of technical analysis that show momentum.
They are used to identify overbought and oversold conditions.
Impulse indicators complement trend indicators, as they may suggest the strength or weakness of a particular trend.
As the momentum increases, it suggests that a trend might be about to erupt. Whereas if the momentum slows down, it suggests that the trend is over. Reliable forex indicators to determine momentum are the MACD and the relative strength index.
Currency volatility indicators
Volatility indicators measure the speed and distance at which prices move in a given period compared to historical data.
Volatility indicators detect volatile market conditions and highlight when volatility starts and stops.
Similar to current indicators, if volatility increases, it may suggest that an outbreak may occur, and when it decreases, it may indicate that a trend is coming to an end.
The accurate forex indicators used to analyze volatility are the Bollinger Bands and the True True Range.
Currency volume indicators
Volume indicators measure the amount of a given currency pair that is traded in the market.
When volume increases, it removes market liquidity at a certain price range, initiating price development in the form of a break to a new price level.
Volume indicators help determine the activity of a market based on the number of new price updates, also known as ticks, in a given period.
Examples of professional forex indicators to analyze volume are Volume ROC, On Balance Volume and Chaikin Money Flow.
Proven Forex indicators
Some of the most tested forex indicators were developed decades ago and have been tested by professional traders.
There are a handful of indicators that you will find on all trading platforms for the simple reason; they work effectively. Different indicators are used to indicate different situations.
1 – Simple moving average
The simple moving average indicator, or abbreviated SMA, falls into the category of a trend indicator.
Moving averages are used to soften price volatility in a currency chart.
When the SMA is applied on a candlestick or bar chart, you can see the highs and lows of each period and the moving average based on previous periods.
Forex traders typically use a default setting of 14 periods.
There are numerous adaptations of the moving average indicator, such as weighted, exponential, triangular, time series, and Wilder smoothing.
Each of these variations has a slightly modified calculation to indicate different behaviors’.
Mobile averages are one of the most reliable forex indicators and are widely used by professional traders.
2 – Bollinger Bands
Bollinger Bands, developed by the legendary John Bollinger in the 1980s, a pioneer of many technical analysis indicators, are found on all trading platforms and are used daily by forex traders.
Bollinger Bands are classified as an indicator of volatility.
Bollinger bands consist of three lines, also known as bands.
The centerline is a simple moving average (described above). The default setting on forex platforms like MT4 is 20 periods.
The upper band has a standard deviation of 2 added, and the lower band has a standard deviation of two subtractions.
As price volatility increases, the bands move away and as the volatility decreases, the bands narrow.
The price of a currency pair will move roughly to the bands, bouncing between the top and bottom.
Bollinger bands are used to determine the support and resistance levels that are used to determine entry and exit points.
The upper band is interpreted as a resistance level and the lower band as a support level. The middle band, the simple moving average, is read indiscriminately as a level of support or resistance.
3 – Parabolic SAR
The parabolic and inverse indicator is considered a trend indicator.
The term parabolic refers to the display of curved parabolas of this indicator.
The Stop and Invert aspect refers to the parabola that alternates above and below the price data that indicates when a trend stops and reverses.
When the parabola is above the price, it indicates a downward trend.
While the indicator is represented below the candles, it indicates an uptrend.
When the curve changes from below the candles above them, it indicates that the current uptrend is stopping.
When the indicator continues to print on the opposite side, it shows the new direction of the trend.
The parabolic SAR is recognized as a very reliable and easy-to-use currency indicator, making it popular with new traders.
Currency indicators in MetaTrader 4
In MetaTrader 4, the platform offered by most brokers and used by many traders, 29 technical analysis indicators are pre-installed.
Although the number of forex indicators in MT4 is small, the platform offers capabilities to create custom indicators using MQL4.
By comparison, the new MetaTrader 5 platform contains 38 forex indicators; in cTrader, there are 65 currency indicators; at TradingView, there are more than 100 technical analysis indicators.
List of MT4 currency indicators
Below is a complete list of professional forex indicators installed on the MT4 trading platform.
- Accelerator / decelerator oscillator
- Accumulation / Distribution
- Average index of directional movement
- Mean true interval
- Impressive oscillator
- The power of bears
- Bollinger Bands
- Bulls Power
- Commodity channel index
- Strength index
- Gator Oscillator
- Ichimoku Kinko Hyo
- Market facilitation index
- Cash flow index
- Moving average
- Moving average convergence / divergence
- Moving average of the oscillator
- Balance volume
- Parabolic SAR
- Relative strength index
- Relative vigor index
- Standard deviation
- Stochastic oscillator
- Williams percentage range
Find the most accurate currency indicator
Many traders naively believe that the more indicators they use, the more accurate the results will be.
However, using so many indicators that you can no longer see the chandeliers below is far from effective.
Too many indicators can cause conflicting signals and cause more doubts. Also, waiting too long for confirmations to line up can lead to missed opportunities.
No indicator, even the most professional forex indicators, can tell you if you want to buy or sell and when to open or close.
The indicators only indicate; how you interpret them and the actions you perform are your responsibility. Trading requires strategy and the indicators you incorporate into the technical analysis are tailored to your strategy.
All MT4 forex indicators are designed and used by professional traders. Basically, the effectiveness of a currency indicator has more to do with the user and their ability to understand signals than the tool itself.
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