Traditionally there are 4 types of forex indicators (and oscillators), each of which gives us specific information on the price trend of an asset:- TREND INDICATORS, highlights and there is a clear trend (bullish or bearish)- MOMENTUM INDICATORS, highlights the strength of a trend (bullish or bearish)- VOLATILITY INDICATORS, highlights how prices are fluctuating- VOLUME INDICATORS, shows how many operators are active on the market
As we will see shortly, some indicators do not fall into just one category, but are “hybrids” because they can fall into two categories at the same time.Thus, for example, the famous Bollinger Bands, which are very effective indicators of volatility, but at the same time also highlight the presence of a trend. We can give an example using the Plus500 webtrader: as you can see, the Bollinger Bands provide us with a clear visual representation of both the price trend (rise / fall) and how large the price fluctuations (volatility) are.
IMPORTANT CLARIFICATION. We must reiterate strongly that each indicator falls into a certain category since it provides us with information on a specific aspect (trend, volatility, volumes, momentum); we reiterate this because many traders who want to obtain an indication of market entry, make the mistake of using two or more indicators of the same category, ending up having the same information twice.How many and which indicators to use are part of a trader’s personal choices, but the important thing is to know the tools you are using, so as to avoid duplicating information. Only in this way will the greatest possible benefit be obtained from the use of the most reliable indicators.
Choosing which type of indicator to use is something that is linked to your trading style: it is personal and concerns each individual trader.However, what is true for everyone and must be reiterated is that a signal provided by an indicator, if also confirmed by an indicator of another category, will be much more reliable.
Having clarified this, let’s see the best known and used indicators of each category, remembering that some of them are hybrids, so we find them simultaneously in several categories.