Ideally, you should be aware of each Forex indicator and how it works. Maybe one day you will. But most traders don’t, and it’s not entirely necessary. However, there are certain indicators you absolutely need to know in order to increase your understanding of the markets.

■ Simple moving average

Although the simple moving average (SMA) is not the most useful indicator, it serves as an excellent introduction to Forex trading. The SMA graphs and compares the different average ranges over a course of 2 or more time spans, thus providing a visual representation of the most and least profitable activities.

■ Exponential moving average

The EMA uses a set price, set period, and a smoothing factor, to graphically represent reactivity to quick changes in the market. The single, smooth line that results is easy for beginners to understand, and makes the EMA one of the most effective Forex indicators.

■ MACD indicator

MACD stands for moving average convergence divergence. It takes 2 EMAs and uses the difference between them to chart the positive vs negative differences. It depicts momentum very clearly and allows traders to make effective decisions on that basis.

■ Fibonacci Retracement

Many traders use the Fibonacci Sequence to analyze the market and make decisions. As such, the market will move according to Fibonacci analysis. This means that a full understanding of what makes Fibonacci analysis work is unnecessary in using Fibonacci retracements. It’s one of the most effective and thus important Forex indicators.

■ Fractals

Using Fractals, one can easily identify the underlying fluctuations in price waves. Fractal bar charts portray 5 bars, which give a clear representation of the patterns of a price. It is very effective and reliable, making it a vital Forex indicator to know.

■ Bollinger Bands

Bollinger bands are used by traders to determine big moves in the market. The upper and lower bands can determine the volatility of the markets and are vital to effective Forex trading.

If you want to be an expert trader, you need to become adept at using Forex trading indicators. While they can seem overwhelming at first, by studying the above indicators and learning how to use them, you'll get the head start you need, and soon understand how best to grow your money.

■ For TradingCenter, DigitalContentZone