Key Technical Analysis Indicators in Forex Trading

MACD (Moving Average Convergence Divergence)

MACD is a widely used tool for assessing trend strength and direction, signaling potential price changes.

How to Use MACD

• Calculated using the difference between two EMAs (typically 12-day and 26-day).

• A "signal line" (9-day SMA of MACD) is plotted alongside. Crosses above/below this line generate buy/sell signals.

• Crossovers: Bullish when MACD crosses above the signal line; bearish when below.

• Divergence: Price and MACD moving oppositely may indicate trend reversal.

• Sharp Rise: A steep MACD slope suggests overbought conditions.

Parabolic SAR

A trend-following indicator that plots dots above/below price to signal reversals.

How to Use Parabolic SAR

• Dots below price = uptrend (buy); dots above = downtrend (sell).

• Best for short-term momentum (e.g., day trading).

Stochastic Oscillator

Measures closing prices relative to a price range over a set period (default: 14 days).

How to Use Stochastic

• Above 80 = overbought (sell signal).

• Below 20 = oversold (buy signal).

Relative Strength Index (RSI)

Identifies overbought/oversold conditions by comparing average gains/losses.

How to Use RSI

• RSI > 70: Overbought.

• RSI < 30: Oversold.

• 50 acts as a trend confirmation level.

Bollinger Bands

Measures volatility with three lines: SMA (middle) and ±2 standard deviations (upper/lower bands).

How to Use Bollinger Bands

• "Bounce": Price reverting to the middle band in ranging markets.

• "Walking the bands": Strong trend continuation signal.

Ichimoku Cloud

A multi-purpose indicator with five lines for trend, support/resistance, and momentum analysis.

How to Use Ichimoku

• Tenkan-sen (Conversion Line): Short-term trend.

• Kijun-sen (Base Line): Medium-term trend.

• Senkou Span (Cloud): Future support/resistance.

• Chikou Span (Lagging Line): Confirms trends.
  Best used with other technical tools.