The use of indicators when trading forex is indeed very helpful for traders in making decisions, especially when traders are going to make buy and sell actions. With the help of indicators, traders can more easily analyze price movements and determine when the right time is for the entry point.

At least, there are 3 best forex indicators that you can use. In addition to its fairly easy use, these three main indicators in forex metatrader are widely used by traders because of their fairly good level of accuracy.

Parabolic SAR Indicator

So far we have known indicators that only focus on how to catch the beginning of a new trend. Although it is important for us to identify new trends, being able to know where a trend will end is equally important. Trading will feel perfect if we know when is the right time to enter and exit.

Parabolic SAR is one of the easiest indicators to read because it only provides an overview of price movements, whether up or down. With these characteristics, Parabolic SAR is suitable for use in markets that are trending, experiencing long rallies, or downturns. Never use this indicator in a choppy market, where prices are moving sideways.

Trading Using Parabolic SAR

The advantage of Parabolic SAR is that it is easy to use, even for new traders. The way to read this indicator is when the dots are below the candle, it means that it is giving us a signal to place a buy order, and vice versa.

Using Parabolic SAR To Exit Trades

In addition to recognizing the end of a trend and what orders should be placed, we can also use the Parabolic SAR to determine whether we should close our trades or not. As an example of how the Parabolic SAR works as an exit signal for trading on the EUR/USD pair.

When EUR/USD started to decline in late April, it looked like it would not stop until it hit the bottom. Traders who had previously made short trades on this pair must have wondered how long EUR/USD would continue to decline like that. In early June, three dots formed at the end of the price, signaling that the downtrend was over and it was time to exit the short trade.

If we remain stubborn and do not want to close the trade because we assume that EUR/USD will continue to decline, we will unknowingly erase all the profits we have made, because this pair will eventually climb back up (maybe even soar) when it approaches the price of 1.3500.

Stochastic Indicator

Stochastic is another indicator that helps us determine where a trend might end. By definition, Stochastic is a signal that measures overbought and oversold conditions in the market. Stochastic tells us when the market is overbought or oversold.

Stochastic is a scale from 0 to 100

When the Stochastic line is above 80 (the red dotted line on the chart above), it means that the market is overbought. When the Stochastic line is below 20 (the blue dotted line), it means that the market is oversold. As a rule of thumb, we buy when the market is oversold, and we sell when the market is overbought.

Looking at the chart above, you can see that the Stochastic has been showing overbought conditions for some time. Based on this information, where can you predict the price will go?

If you said the price will go down, then you are right! Since the market has been overbought for a long period of time, a market reversal is bound to happen. That is the basics of Stochastic. Many traders use Stochastic in different ways, but the main purpose of this indicator is to show us where the market conditions may be overbought or oversold. With time and practice, you will learn to use Stochastic to suit your own trading style.

MACD Indicator

MACD stands for Moving Average Convergence Divergence. MACD (moving average convergence / divergence), which is an indicator of technical analysis created by Gerald Appel in the 1960s. This indicator is used to see the average movement of the graph, also to see the deviations that occur.

When there is a deviation, this is the right time for us to enter the market. Because at that time the price will reverse direction by forming a long trend. The deviation / abnormality referred to here is:

  • Convergence is a condition where the graph is getting lower but the indicator is getting higher. When convergence occurs, the graph will reverse direction to go up, and we can open a buy. The entry point is when the histogram bar is higher than before after convergence.
  • Divergence is a condition where the graph is getting higher but the indicator is getting lower. When divergence occurs, the market will reverse direction and go down. The entry point is when the histogram bar is lower than before after the divergence occurs.

This system/indicator is used to identify moving averages that indicate a new trend, whether it is bullish (strengthening) or bearish (weakening). Our main priority in trading is to be able to find trends, because that is where the most money is made.

In addition to the two entry points above, we can also open a position through the entry point below, especially when the market is active but not forming a trend. When there is an intersection between the signal line and the histogram bar. Where the entry point to open buy is when the signal line is below the histogram. And the entry point to open sell is when the signal line is above the histogram.

When there is a shift in the histogram position from positive to negative, or vice versa. The entry point for open buy is when the histogram has just become positive, or has just crossed the 0 (zero) line from below. And vice versa.

Apart from that, we can also observe it from the image below:

Since there are two red and blue lines moving at different “speeds”, the faster one will obviously react faster to price movements than the slower one. When a new trend occurs, the fast line will react first and eventually cross the slow line. When this “crossover” occurs, and the fast line begins to “diverge” or move away from the slow line, it often indicates that a new trend has formed.

From the chart above, you can see that the fast line crosses below the slow line and correctly identifies a new trend. Notice that when the lines cross. This is because the difference between the lines at the time of the crossover is 0. As a downtrend begins and the fast line diverges from the slow line, the histogram will be larger, which is a good indication of a strong trend.

Let's look at an example:

GE stock (General Electric 1-hour chart above, where the blue line is above the red line then the Bullish signal will take place, while the blue line is below the red line while the histogram (bar/box) disappears. This indicates that the downtrend will continue. Since then, the movement of GE shares has continued to decline and created a new downtrend. Until now, the MACD indicator is in great demand by traders.

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