Forex Signals Report - What You Need To Know
By Dean Branwhite
Forex signals are also called technical indicators. These signals are data points which are used to predict the direction of fluctuations in currency exchange rates. This Forex signals report covers three of the most commonly used Forex signals used by currency traders.
Signal #1: Relative Strength Index (RSI)
The RSI is an indicator which measures upwards movement versus downward movements in the Forex market. This indicator is expressed as a ratio normalized to a 0-100 range.
A financial instrument like a currency pair is said to be “overbought” when it exceeds an RSI value of 70 or greater. Similarly, a currency pair is said to be “oversold” when its RSI value is at or below 30.
The RSI is a broad indicator of the demand for a given currency at a particular moment. Traders should remember that there are many different factors that can cause spikes and falls in a currency’’s RSI value, so this indicator doesn”t always provide a reliable indicator of trends on its own.
For spot trading and some mid-range trading RSI is a useful indicator. However, this is by no means the only indicator traders should keep an eye on, especially if long term holding strategies are part of your plan.
Signal #2: Stochastic Oscillators (SO)
S.O. charts are also helpful in determining whether a currency traded on the Forex market is “oversold” or “overbought”. The conditions of the currency are expressed as a percentage ranging from 0%-100%.
The S.O. indicator is drawn from observation of market behaviors focused on closing trades. In the periods before closing it is known that trends both downwards and upwards tend towards extremes.
The buying and selling conditions examined in this indicator are charted on two lines: %K and %D. When these two lines diverge against a currency’’s price action, it’’s a strong trading signal.
Signal #3: Moving Average Convergence Divergence (MACD)
The MACD Forex signal is an indicator which plots two lines: the signal/trigger line and the MACD line.
The MACD line shows the difference between the signal line and exponential moving averages. The signal line is the exponential moving average of this difference. It’’s complex in concept and complex in execution as well. It may be helpful to look at MACD as an equation.
In this example, each exponential moving average is represented by EMA-0, EMA-1, EMA-2 and so on….
The Signal Line is then equal to: EMA (EMA0 - EMA-1… + …EMA-2 - EMA-3…+..) and so on.
Essentially, the signal line reflects the exponential moving average of moving averages over time, such that:
Signal Line = EMA (EMA-0 minus EMA-1), and..
The MACD line = (EMA0-EMA1) - signal line.
Signal and MACD lines are charted against a “Zero” line. The extremes of the Zero line represent slow and fast MACD movement respectively. A change in trend is indicated when the Signal and MACD lines intersect.
These are the three most commonly used Forex signals. There are others including very complex signals which are derived from Elliot Wave theory and Gann numbers.
However, you don”t have to be a mathematician or a financial expert to use these indicators thanks to the many commercial software choices for incorporating Forex signals into trading strategies.
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