Forex indicators explained: moving averages, RSI, MACD and more

Indicators are calculations based on price, and sometimes volume, drawn on or under a chart. They do not predict the future, but they summarise trend, momentum and volatility so you can apply rules consistently.

Moving averages

A simple moving average (SMA) weights every period equally; an exponential moving average (EMA) gives more weight to recent prices, so it reacts faster. Traders use them to judge trend direction, as dynamic support and resistance, and in crossovers, such as a 50-period average crossing a 200-period one.

RSI (Relative Strength Index)

Developed by J. Welles Wilder, RSI moves between 0 and 100. Readings above 70 are often called overbought and below 30 oversold. In strong trends RSI can stay at extremes for a long time, so many traders use it with the trend rather than against it.

MACD

MACD subtracts a 26-period EMA from a 12-period EMA and plots a 9-period signal line. Crosses of the signal line and the zero line are read as changes in momentum. Because it is built from moving averages, it lags price.

Bollinger Bands and ATR

Bollinger Bands widen when volatility rises and narrow when it falls; a squeeze can come before a breakout. ATR measures volatility in pips, which makes it useful for setting stops. See stop-loss strategies.

Combining indicators

Indicators of the same type tell you much the same thing, so stacking three momentum tools adds little. A common approach is one trend tool, one momentum tool and one volatility tool, with price levels as the main reference.