An indicator in technical analysis is a mathematical calculation based on a securities price and or volume. The result is used to predict future prices. Common technical analysis indicators are the moving average convergence – divergence (MACD) indicator and the relative strength indix (RSI) according to Investopedia.
In Forex an indicator is an Expert Advisor (EA) tool which follows a certain method or strategy to help you make better buying and selling decisions. Forex indicators can be found all different Forex trading platforms, especially the ones which allow EAs.
It is a mean to help traders who are constantly waiting for their perfect moment to make a trade, and despite having good prediction and accuracy they still may fall short. Forex indicators are there to help determine the best time to buy or sell a forex cross rate.
Here are two of the most popular indicators that most successful traders rely upon to give you a better idea of what a Forex indicator is.
Trend Following Tool
As its name suggests it is a tool to help you when you decide to follow the direction of major trends and attempt to make a profit. The main purpose of this tool is to help you determine whether you should enter a long or short position. There are of course many ways to go about it but you will mainly rely on this tool to help you decide the right time and right type of position.
Overbought /Oversold tool
Once you decide how you will execute a trade, and whether you want to buy into strength or weakness after a trend is determined to be bearish or bullish, you can use this indicator to help you make a better decision. Using the three –day relative index it calculated the cumulative sum of up days and down days over a period and calculates a value that can range from zero to 100. If all the price action is to the upside the indicator will approach 100, if the price is to the downside however the indicator will move towards zero. 50 is the middle, and therefore it becomes a form of a calculation as to which side you should go.