Technical analysis is one of the most reliable and time-proven techniques for predicting price movements in the forex market. Although technical analysis can be incredibly reliable for predicting market movements, it’s a broad and subjective topic with many factors to consider.
When every online trading platform comes loaded with dozens, even hundreds of technical analysis indicators, it can be hard to choose the best indicator for trading forex. Traders often get stuck at determining which technical analysis indicators are most accurate, consistent and reliable for trading forex.
Many traders think that a forex indicator is accurate or inaccurate, but the efficacy of an indicator is not a binary outcome. The efficacy of an indicator depends on how it’s applied to conduct technical analysis, and user error is the main reason for negative results.
This guide explores the three most accurate forex indicators and how to ensure you get the most out of these tools.
- Types of Forex Indicators
- Proven Forex Indicators
- Forex Indicators in MetaTrader 4
- List of Forex Indicators in MT4
- Finding The Most Accurate Forex Indicator
Types of Forex Indicators
Although there are hundreds of variations of forex indicators, they are categorized into four main categories; trend, volatility, volume and oscillator indicators.
The 3 most accurate Forex indicators are:
- Simple Moving Average
- Bollinger Bands
- Parabolic SAR
Forex trend indicators
Trend indicators identify the presence or absence of trends and their direction.
You can observe trends over different chart time frames as a currency pair could be trending upwards on the daily chart but trending down on the 15-minute chart.
The simple moving average, Parabolic SAR and Accumulative Swing Index are accurate forex indicators for determining trends in the market.
Forex momentum indicators
Oscillators are a family of technical analysis indicators showing momentum.
They are used to identify overbought and oversold conditions.
Momentum indicators compliment trend indicators as they can suggest the strength or weakness of a given trend.
As momentum increases, it suggests a trend could be about to break out. Whereas if momentum slows, it suggests a trend is coming to an end. Reliable forex indicators for determining momentum are MACD and Relative Strength Index.
Forex volatility indicators
Volatility indicators measure how fast and how far prices move in a certain period compared to historical data.
Volatility indicators detect volatile conditions in the market and highlight when volatility starts and stops.
Similar to momentum indicators, if volatility increases, it can suggest a breakout may occur, and when it decreases, it can signal a trend is reaching the end.
Accurate forex indicators used to analyze volatility are Bollinger Bands and Average True Range.
Forex volume indicators
Volume indicators measure how much of a given currency pair is being exchanged in the market.
When volume increases, it takes liquidity out of the market at a certain price range, initiating price development in the form of a breakout to a new price level.
Volume indicators help determine how active a market is based on the number of new price updates, otherwise known as ticks, in a given period.
Examples of professional forex indicators for analyzing volume are Volume ROC, On Balance Volume and Chaikin Money Flow.
Proven Forex Indicators
Some of the most proven forex indicators were developed decades ago and have been put to the test by professional traders.
There are a handful of indicators you’ll find in every trading platform for the simple reason; they work effectively. Different indicators are used to indicate different situations.
1 – Simple Moving Average
The simple moving average, or abbreviated SMA, indicator falls under the category of a trend indicator.
Moving averages are used to smooth out the volatility of prices on a forex chart.
When the SMA is applied on a candlestick or bar chart, you can see the highs and lows of each period and the moving average based on previous periods.
Forex traders usually use a default setting of 14 periods.
There are numerous adaptations of the moving average indicator, such as weighted, exponential, triangular, time series and Wilder smoothing.
Each of these variations has a somewhat modified calculation to indicate different behaviors’.
Moving averages are one of the most reliable forex indicators and are heavily used by professional traders.
2 – Bollinger Bands
Bollinger Bands, developed by the legendary John Bollinger in the 1980s, the pioneer of many technical analysis indicators, are found in every trading platform and used by forex traders daily.
Bollinger Bands are classified as a volatility indicator.
Bollinger Bands consist of three lines, also known as bands.
The middle line is a simple moving average (described above). The default setting in forex platforms like MT4 is 20 periods.
The upper band has a standard deviation of 2 added, and the lower band has a standard deviation of two subtracted.
As price volatility increases, the bands drift further apart, and as volatility decreases, the bands tighten.
The price of a currency pair will move roughly within the bands, bouncing between the top and bottom.
Bollinger Bands are used to ascertain support and resistance levels used to determine entry and exit points.
The upper band is interpreted as a resistance level and the lower band a support level. The middle band, the simple moving average, is interchangeably read as either a support or resistance level.
3 – Parabolic SAR
The Parabolic Stop and Reverse indicator is considered a trend indicator.
The term parabolic refers to the curve-like parabola visualization of this indicator.
The Stop and Reverse aspect refers to the parabola alternating above and below the price data indicating when a trend stops and reverses.
When the parabola is above the price, it indicates a downtrend.
Whereas the indicator is plotted below the candles, it indicates an uptrend.
When the curve switches from below the candles to above them, it signals the current uptrend is stopping.
When the indicator continues to print on the opposite side, it shows the new direction of the trend.
Parabolic SAR is recognized as a very reliable and easy to use forex indicator, making it popular with new traders.
Forex Indicators in MetaTrader 4
In MetaTrader 4, the platform offered by most brokers and used by many traders, 29 technical analysis indicators are preinstalled.
Although the number of forex indicators in MT4 is small, the platform offers capabilities to build custom indicators using MQL4.
List of Forex Indicators in MT4
Below is a complete list of professional forex indicators installed in the MT4 trading platform.
- Accelerator/Decelerator Oscillator
- Average Directional Movement Index
- Average True Range
- Awesome Oscillator
- Bears Power
- Bollinger Bands
- Bulls Power
- Commodity Channel Index
- Force Index
- Gator Oscillator
- Ichimoku Kinko Hyo
- Market Facilitation Index
- Money Flow Index
- Moving Average
- Moving Average Convergence/Divergence
- Moving Average of Oscillator
- On Balance Volume
- Parabolic SAR
- Relative Strength Index
- Relative Vigor Index
- Standard Deviation
- Stochastic Oscillator
- Williams’ Percent Range
Finding The Most Accurate Forex Indicator
Many traders naively believe the more indicators they use, the more accurate results they achieve.
However, using so many indicators that you can no longer see the candlesticks underneath is far from effective.
Too many indicators can lead to conflicting signals and cause further doubt. What’s more, waiting for too many confirmations to line up can lead to opportunity loss.
No indicator, even the most professional forex indicators, can tell you whether to buy or sell and when to open or close.
Indicators merely indicate; how you interpret them, and the actions you take are solely your responsibility. Trading requires strategy, and the indicators you incorporate in your technical analysis must fit your strategy.
All of the forex indicators in MT4 are designed and used by professional traders. Essentially, the efficacy of a forex indicator has more to do with the user and their ability to understand the signals than the tool itself.
About This Article
Author: Mark Prosz
Sources of information and credits for this post include:
 J. Welles Wilder, Jr. (June 1978). New Concepts in Technical Trading Systems. Greensboro, NC: Trend Research. ISBN 978-0-89459-027-6.