Popular Technical Indicators

The three majors indicators are the:

1. Relative Strength Index (RSI)
2. Stochastic Oscillator
3. Moving Average Convergence Divergence (MACD)

Relative Strength Index (RSI):

This index is a popular indicator of the FX market. The RSI measures the ratio of up-moves to down-moves and normalizes the calculation so that the index is expressed in a range of 0-100. If the RSI is 70 or greater then the instrument is seen as overbought (a situation whereby prices have risen more than market expectations). An RSI of 30 or less is taken as a signal that the instrument may be oversold (a situation whereby prices have fallen more than the market expectations).

Stochastic Oscillator:

This is used to indicate overbought/oversold conditions on a scale 0-100%. The indicator is based on the observation that in a strong up trend, closing prices for periods tend to concentrate in the higher part of the period's range. Conversely, as prices fall in a strong down trend, closing prices tend to be near to the extreme low of the period range. Stochastic calculations produce two lines, %K and %D which are used to indicate overbought/oversold areas of a chart. Divergence between the stochastic lines and the price action of the underlying instrument gives a powerful trading signal.

Moving Average Convergence Divergence (MACD): MACD Video Clip

This indicator involves plotting two momentum lines. The MACD line is the difference between two exponential moving averages and the signal or trigger line which is an exponential moving average of the difference. If the MACD and trigger lines cross, then this is taken as a signal that a change in trend is likely.