Sara East

Here is a synopsis of these forex indicators explained. The purpose of an indicator is to provide guidance to an inflection point where change may occur. A forex indicator signals a change in currency price direction. There are basically two types of indicators. One type is referred to as technical and the other is considered economic. The technical approach focuses on chart patterns and price fluctuation measurement such as, RSI or relative strength index, MACD or moving average convergence divergence, stochastic oscillator, as well as other chart patterns. Economic indicators focus on macro economic factors, such as GDP growth, retail sales, CPI, industrial production, and unemployment.

Let us take a deeper look at some of the technical indicators first. The Relative Strength Index is a normalized ratio of positive moves versus negative ones. This normalization results in an index range of zero to one hundred. If this RSI shows a value in excess of seventy then conditions are considered to be overbought relative to expectations. Similarly, if the ratio is below thirty then conditions would be considered oversold.

The MACD or the moving average convergence divergence is a resulting graph that shows the difference between two different moving average lines. There is a second trigger line which is generated by calculating the exponential moving average of this difference. Upon the crossing of these two lines, an indication is given that a change in trend is more than likely.

To gauge the sustainability of an uptrend or downtrend, the stochastic oscillator is a good indicator. This metric generates values from zero to a hundred in percentage terms based on observations of closing prices. In an uptrend, the closing prices are focused on the upper end of a period’s trading range and similarly in a downtrend, the prices tend to close near the bottom end. This results in two bands of lines encapsulating overbought and oversold regions. A movement or divergence from these bands is an indication of a trend change.

For forex indicators explained, one needs to include economic factors. GDP growth is the most prevalent economic indicator. It reflects the change in the gross domestic product, or an economy’s total value of its output which is the goods and services it produces. GDP is measured on an annual, quarterly, and sometimes monthly basis. Although GDP growth shows the change in economic output, it should not be viewed in isolation.

Industrial production helps measure productivity, as well. This calculation measures the manufacturing prowess of a nation. Another offshoot of this measurement is capacity utilization. The greater the amount or increase in unused capacity could well signal a decrease in economic activity and, hence, a lower currency value.

For example, other indicators should be considered when determining the strength of an economy. Among these are unemployment and housing statistics. When there is a large population that is at unrest or unproductive, it can result in greater political and economic instability. An engaged and productive population growth is ideal for maintaining a strong currency.

As stated earlier, unemployment affects consumption. However, it is not a direct correlation. A country can have a relatively healthy unemployment rate with lower consumption. The population can opt to save versus spend. Hence, retail sales are a good indicator of economic sentiment. The more optimistic one is about the future the more likely one is to spend.

Lastly, GDP and retail prices are affected by inflation. The value of goods and services can vary depending on input costs. To gauge inflation, the consumer price index or CPI is used. This index measures the change in value of a set group of goods and services. This index, along with the PPI or producer price index, can help determine the profit or surplus of an economy. A composite understanding of these indicators along with the technical signal previously discussed, provides a good forex indicators explained overview.

The uprising of forex techniques will always make things a little extra competitive to all. Whereas, you as a wise trader, must always look at the fundamental fx trading strategies.

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