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Below we provide a composite of forex indicators explained. An indicator, in general, is one that signals a change. In forex world, it means currency fluctuations. Currency fluctuations are affected by several factors. To monitor or predict these changes, two broad categories of indicators are used: technical and economic. A technical approach is one that uses price history changes and chart patterns. Some examples would be stochastic oscillator, moving average convergence divergence or MACD, and RSI or relative strength index. Economic indicators are, just that, based on economic data. The common economic measurements are GDP growth, unemployment, CPI, retail sales, and industrial production.
Let us dive more closer into the world of technical indicators. A measurement of the strength of the underlying currency movement trend can be defined by its RSI or relative strength index. This normalized index is a ratio of the positive moves relative to negative ones to determine which direction is more prevalent. The index is based on a zero to one hundred point value. A number below thirty indicates oversold and over seventy as overbought.
Another indicator, the MACD, can signal a change in direction over a specific window of time measured. This moving average convergence divergence calculates the difference between two exponential moving averages like a two hundred day versus a fifty day. Graphing this difference versus the moving average of the difference will provide cross over points that signal a change in direction.
The stochastic oscillator is a very good gauge for the sustainability of a trend whether it is positive or negative. This methodology calculates percentage values based on closing prices. In the case of an uptrend, the closing prices are focused on the upper end of a trading range, and in a downtrend they are near the bottom end. The concluding result is a band of lines which delineates an uptrend or downtrend. Any variation away from these bands would result in a trend change signal.
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