Master 15 Technical Indicators in Forex and Stocks - From Theory to Practice

Why Are Indicators a Turning Point for Traders?

Every day, countless traders sit in front of their screens, looking at price charts but unsure of what action to take next. Buy or sell? When is the right time? How to place orders without losing money? These questions often bother traders, especially newcomers to the market.

In reality, without supporting tools, market prediction is just a matter of luck. But once you understand and know how to combine technical indicators (indicator), everything changes. Indicators help you identify potential buy/sell points, upcoming trends, and most importantly - they enable you to trade with confidence instead of impulsiveness.

Technical indicators have been developed by traders and statisticians over decades, and today they are automatically calculated on most trading platforms, completely free. Your job is to learn how to use them effectively.

The Four Main Groups of Indicators You Need to Know

Technical analysis uses three main tools: trend, chart patterns, and technical indicators. Among them, indicators are divided into four distinct groups, each serving different purposes:

Group 1: Trend Indicators - Help you determine whether the market is bullish, bearish, or sideways.

Group 2: Momentum Indicators - Show the strength of the current trend and whether it is strong enough to continue or about to weaken.

Group 3: Volatility Indicators - Assess the degree of price fluctuations, helping to identify effective entry and exit points.

Group 4: Volume Indicators - Analyze the buying and selling pressure behind price movements.

Each group can operate independently, but combining them produces very powerful signals.

Trend Indicators: Catch Turning Points

Moving Average (Moving Average - MA)

This is the “bread and butter” indicator that almost every trader knows. The MA line shows the market’s direction—uptrend, downtrend, or sideways. The calculation is simple: take the closing prices over a certain period and average them.

The important thing is that MA does not predict prices precisely; it only shows the emerging trend. It acts as a guiding line, helping you stay on track amid volatile markets.

ADX (Directional Average)

ADX is an independent indicator of trend strength. It answers the question: “Is the market in a strong trend or just oscillating?” Notably, ADX can rise even when prices are falling—this is not a contradiction but indicates a very strong downtrend.

With ADX, traders can decide whether to participate or wait. If ADX is below 20, it’s better to wait because the market is too weak.

Ichimoku Cloud (Ichimoku Kinko Hyo)

If you want an “all-in-one” indicator, Ichimoku is the choice. It consists of 5 lines (Tenkan-sen, Kijun-sen, Senkou span A, Senkou span B, Chikou span), forming a “cloud” that clearly shows support, resistance, and market trend areas.

Another benefit is that Ichimoku provides a comprehensive view—not just a number but a complete system.

MACD (Moving Average Convergence Divergence)

MACD is built on two moving averages, creating a very visual (histogram) chart. It helps you observe changes in momentum, price direction, and identify trading opportunities.

When MACD crosses above the signal line, it often signals an impending surge in bullish momentum.

Parabolic SAR (Parabolic SAR)

Simple but effective. It acts as an automatic “trailing stop,” helping you determine when to buy, sell, or set stop-loss orders. When SAR is below the price, it signals an uptrend; when above, a downtrend.

Momentum Indicators: Detect When the Market Is Overheated

RSI (Relative Strength Index)

RSI is the “core” of indicators. It oscillates from 0-100 and indicates whether an asset is overbought (overbought) or oversold (oversold) relative to itself over the past cycle.

Typically, RSI above 70 signals overbought, below 30 signals oversold. But remember, this does not mean prices will reverse immediately—it’s just a warning to be cautious.

Stochastic Oscillator (SO)

SO compares the current closing price to the price range over a specified period. It also oscillates from 0-100, with above 80 indicating overbought and below 20 oversold.

The difference from RSI is that SO reacts faster and is more sensitive, so it can generate false signals. Therefore, you should combine SO with other indicators for confirmation.

Williams %R

Williams %R works similarly to SO but with an inverted scale. It also helps detect overbought/oversold conditions and potential reversals. Many traders prefer %R over SO because it produces fewer false signals.

Volatility Indicators: Find Perfect Entry and Exit Points

ATR (Average True Range)

ATR measures the degree of price volatility. A high ATR indicates a highly volatile market, while a low ATR suggests a calm market.

You can use ATR to determine stop-loss size—more volatility means wider stops. Conversely, if you prefer tight trading, wait for ATR to decrease, indicating less market chaos.

Bollinger Bands (Bollinger Band - BB)

BB is a powerful tool based on a simple moving average. It creates three lines: the middle (MA), and the upper and lower bands (calculated from standard deviation).

When prices touch the upper band, it signals overbought; when touching the lower band, oversold. Interestingly, BB also indicates when the market is “sleeping” (two lines close together) or “waking up” (two lines far apart).

Standard Deviation (Standard Deviation - SD)

SD is a component of BB—it measures the deviation of price from the moving average. Higher SD indicates more market volatility. When SD is unusually high, it often signals the market is about to enter a consolidation phase after a big move.

Volume Indicators: Confirm True Strength

MFI (Money Flow Index)

MFI combines price and volume to give an overview of buying and selling pressure. It oscillates from 0-100. High MFI indicates significant money inflow (overbought), low MFI suggests money is flowing out (oversold).

Many traders use MFI with Elliott waves or Fibonacci to identify price targets.

A/D (Accumulation/Distribution)

A/D helps determine whether an asset is being accumulated (smart money buying) or distributed (holders selling). If prices rise but A/D declines, it’s a warning sign—meaning buying volume isn’t strong enough to support the price increase and a reversal may occur.

OBV (On-Balance Volume)

OBV is simple but effective. It accumulates volume based on whether prices are rising or falling. If OBV is rising steadily, it indicates traders are actively buying; if falling, selling pressure dominates.

OBV is especially useful for confirming breakouts—if the price breaks resistance but OBV doesn’t increase, the breakout may fail.

Quick Reference Table - Choose the Right Indicator

Important note: Bollinger Bands and Ichimoku are considered “multi-purpose”—they can be used independently for specific strategies. Volume indicators are often “confirmation” tools—they help you gain confidence when detecting signals from other indicators.

Practical Strategy: Combine 4 Indicators for BUY Trades

Good theory is one thing, but real trading is where money is made. Here is a specific strategy using RSI, Ichimoku, Bollinger Bands, and OBV to enter a BUY order:

Step 1: Price Breaks Above the Middle Bollinger Band

The initial condition is crucial. Wait until the price breaks and closes above the middle Bollinger Band. This is the first sign that the market is shifting from quiet to active.

Why the middle? Because it’s the average line—once the price crosses it, momentum is shifting from neutral to positive.

Step 2: Confirm RSI Crosses Above 50

At this step, wait for RSI to cross above 50. This means: if the price has risen but RSI hasn’t followed, the momentum is still lagging—a good sign that a breakout is imminent.

RSI above 50 is considered positive momentum. However, be patient—prices and RSI don’t always rise together. Sometimes RSI needs a little time to catch up, and that’s when you should wait rather than rush to open a position.

Step 3: Confirm Increasing Volume - OBV Rising

This is the “final” step—you need to be sure there is strong buying behind that momentum. OBV is the best indicator to confirm this. When OBV starts rising, it means trading volume is increasing and buying pressure is taking control.

Only when all three conditions are met should you open a BUY order. This is the signal about to happen.

Step 4: Set Stop Loss Below the Lower Bollinger Band

Risk management is critical. Your stop-loss should be placed at a level where, if the price falls below, your strategy is invalidated.

The lower Bollinger Band is ideal because it marks the boundary of volatility. Setting a stop-loss too close (for example, just 1% below entry) can get you “knocked out” by normal fluctuations. Setting it too far (for example, 10% below) results in larger losses.

Step 5: Take Profit When Signs of Reversal Appear

The best way to take profit is to observe one or at most two indicators instead of all four. The reason is that waiting for all indicators to signal a sell might take too long and cause you to miss part of the profit.

The best signals to exit are when the price reverses or RSI exceeds 70 (overbought signal) combined with Ichimoku exit signals. A breakout above the upper Bollinger Band is also a strong signal—it indicates the price has reached a volatility peak and may soon decline.

Important Note: Indicators Have Limitations

Before concluding, remember this fact: no indicator is 100% accurate. They can all produce false signals.

RSI can give overbought/oversold signals but prices may continue rising/falling. MACD can signal a crossover but then quickly reverse. Bollinger Bands can be broken through during sudden volatile days.

Therefore, combining multiple indicators from different groups is absolutely necessary. When one indicator signals a buy, wait for another to confirm before acting. This significantly reduces false signals.

Conclusion: Indicators Are the Foundation, Experience Is the Key

Technical indicators in forex and stocks are not silver bullets, but they are powerful tools when used correctly. Mastering these 15 indicators and knowing how to combine them will give you a decisive advantage over traders who rely solely on intuition.

However, knowledge is one thing; practice is another. You need time to experiment, to understand how each indicator works across different timeframes and markets. There’s no quick way to learn—only the right way.

Start with a simple strategy (2-3 indicators), practice on a demo account, and gradually upgrade as you gain confidence. Over time, you will develop your own “market feel,” and then indicators will become your excellent allies, not rigid rules to follow.

The journey to mastering technical indicators in forex begins now. Wishing you success!