Why do we use Indicators? Find out the purpose of indicators and how indicators are used.

Forex traders spend time looking for the best opportunity to enter or exit. Honestly, there is not one particular way to trade the markets, therefore we must learn why do we use indicators, the purpose of indicators and how indicators are used.

What is the purpose of indicators?

The purpose is to bring in the cash but there are three main functions of indicators that can help us do this.

Function #1 – Alert

For example, an indicator can alert us when there is a breakout signal or a pair is overbought or oversold.

Function #2 – Confirm

They can confirm other methods of analysis. If we see a daily pin bar on a bearish candle, it’s hitting resistance, and we see through an indicator that it is overbought. That confirms a
possible sell opportunity.

Function #3 – Prediction

People sometimes use indicators to also predict future market directions.

purpose of indicators

Well, how do we get indicators? 

Indicators are derived from multiple calculations and points on the present chart. For example, an indicator may take into consideration the close of the last bar. A simple moving average takes the closing prices over a specific period of time then divides them by the duration of that period.

Some of the calculations used for indicators are much more complicated than that but what is important is…

How are indicators used? 

Each indicator has its specific rules and roles.

This is why we have multiple articles on indicators available at Winner’s Edge.

Here is a list, enjoy!

We have answered why do we use indicators, the purpose of indicators and how indicators are used. Now you need to educate yourself on the types of indicators…

How to Trade the Parabolic SAR
Stochastics Indicator
Using Murray Lines
Forex Power Indicator
Technical Indicators
Using Simple Moving Averages
Ichimoku Kinko Hyo Indicator
Average True Range (ATR)

Learn more about Trading Forex on our Tutorials page.

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