Forex trading is a fascinating way of earning a living online, and if you are seriously considering entering this fascinating world of forex trading you must consider, by all means, the learning and understanding of a number of indicators that will give you invaluable help on predicting with a high probability the directions the forex market may take as you carefully analyze the price charts for any currency you are trading at the moment. Two of these important indicators are: “Bollinger Bands” and “Fibonacci Retracements”.

The basic interpretation of “Bollinger Bands” is that prices tend to stay within the space formed by the tracings of the upper and lower bands. The distinctive characteristic of “Bollinger Bands” is that the spacing between the bands varies based on the volatility of the prices. During periods of extreme currency price changes (i.e., high volatility), the bands widen to become more forgiving. During periods of low volatility, the bands narrow to contain currency prices. The bands are plotted two standard deviations above and below a simple moving average. They indicate a “sell” when prices are above the moving average (or close to the upper band) and a “buy” when prices are below it (or close to the lower band). The bands are used by some forex traders in conjunction with other analyses, including RSI, MACD, CCI, and Rate of Change.

“Fibonacci retracement levels” are a sequence of numbers discovered by the noted mathematician Leonardo da Pisa during the twelfth century. These numbers describe cycles found throughout nature and when applied to technical analysis can be used to find pullbacks in the currency market. More information here; http://www.1-forex.com

“Fibonacci retracement levels” are a quite effective way to see the future (at least in the forex markets), i.e., it involves anticipating changes in trends as prices near the lines created by the Fibonacci studies. After a significant price move (either up or down), prices will often retrace a significant portion (if not all) of the original move. As prices retrace, support and resistance levels often occur at or near the “Fibonacci Retracement levels” (See my articles on “Fibonacci trading” for more detail about this).

In the currency markets, the commonly used sequence of ratios is 23.6 %, 38.2%, 50% and 61.8%. Fibonacci retracement levels can easily be displayed by connecting a trend line from a perceived high point to a perceived low point. By taking the difference between the high and low, the user can apply the % ratios to achieve the desired pullbacks.

Having the correct tools and best FOREX trading indicators on your side will increase your chances in succeeding in this financial trading market. Let us look at how we can understand and analyze better how to use these tools to our advantage.

We will make it clear first that there is no single trading indicator that will work every single time. It usually takes a combination of two or several indicators for you to come up with a proper strategy to increase your chances of success in trading.

Trends in the FOREX market are usually easy to understand by looking at figures that go up and down in simple charts. They can paint a picture that would be simple for us to visualize from afar what currencies have a better potential for income than others at a certain point in time.

Apart from knowing that, here are some trading indicators that can lead you to a greater advantage by learning how to understand them.

Simple Moving Averages is one indicator that is very useful. It is taken from a certain period of closing prices of currencies that are then summed up and divided by the total amount of periods. In other words, it is the average price of a certain period for a currency.

Bollinger Bands can help by showing the volatility in the market trends. They are labels or tags that show when a currency or commodity has reached an overbought or an oversold level. They can show you assumed lowest levels for you to purchase or the highest levels of the trend to show the best time to sell, and at the same time, show all the deviations of the market flow toward that commodity or currency.

Aided with these, a proper stage for timing must be set. Just bear in mind that you should never try to predict a move and should use your market indicators to get the proper timing.

Good indicators to help you with timing are the RSI or Relative Strength Index and the stochastic. The RSI shows you oscillations of time entries for existing trends, usually preferred in 9-day, 14-day, and 25-day RSI’s. The stochastic, on the other hand, has crossovers to help show any movement that you look at by showing contrasting trades between the bullish and bearish divergence from oversold and overbought areas – all against the current currency trend.

Although each indicator has an advantage in a particular area, no single one may be a preferred standout choice. These indicators are the best FOREX trading indicators there are available today but must be blended depending on instance, to create the best market trading strategy for you.