The Best Indicators for Day Trading Forex

When developing a new day trading strategy, whether to use indicators will most likely be a question you’ll find yourself asking.

When implemented alongside prudent risk management, finding the best indicators for day trading Forex can take your strategy to the next level.

Forex indicators give traders signals, based on mathematical calculations around price.

These signals are then plotted on your chart, either directly over price candles, or displayed visually in another format inside windows underneath the main chart.

Indicators can help traders identify trends and signal optimal entry or exit points within an overall day trading strategy.

We go over some of the best Forex indicators for day trading below, dividing them into 3 major categories.

Best Forex Indicators

Which Forex indicator is the best choice for you, will largely depend on your day trading strategy and risk management rules.

We’ve featured three groups of Forex indicators below.

1. Sentiment indicators
2. Signal Indicators
3. Utility Indicators

Remember that the following list of best Forex indicators is just a starting point for day traders and are not ranked in any way other than their grouping type.

If you’re looking to take a further step, make sure you explore the full range of MT4 indicators on our products page.

1. Sentiment indicators

The first group of Forex indicators for day trading, can be defined as sentiment indicators.

Sentiment indicators show the number of trades and traders that have taken a particular position within a Forex currency pair.

They’re used to alert Forex traders about extreme market conditions and as a result, areas where price more likely could reverse.

Sentiment.Lite

The Sentiment Lite indicator displays market sentiment data directly onto your MT4 charts.

You may know the data this Forex indicator displays by another name – The Speculative Sentiment Index (SSI).

Once the Sentiment Lite indicator is installed, you’ll see a histogram that shows the percentage of bulls and bears in the market, displayed as a ratio.

This indicator is an excellent starting point for Forex day traders that are looking to implement sentiment analysis into their strategy, but if you want more data sources then you’re able to upgrade to the FXSSI Current Ratio indicator.

Current.Ratio

The Current Ratio indicator shows the ratio of buy/sell orders currently being held among major Forex brokers.

The current ratio is one of the most popular Forex indicators for day traders because of how simple and usable the data displayed on your MT4 charts can be.

The indicator displays the percentage of traders’ positions in a separate panel, giving you a snapshot of how the overall market is positioned.

Buy/sell data is taken from 9 large brokers and can be used on 12 different Forex currency pairs.

From this data, contrarian traders are able to position themselves to not get caught out if the crowd is forced to liquidate when their trades are caught off-side.

StopLossClusters

The Stop Loss Clusters indicator displays levels in the market, where the highest volume of stop loss orders are currently sitting.

Knowing where stop loss orders are clustered together is highly beneficial for day traders, because they can better predict where institutional traders may look to move the market in order to build their own sizable positions.

Typically you’ll see these clusters of stop loss orders forming at price swings, both highs and lows, as well as just beyond levels of obvious support/resistance.

The stop loss cluster indicator will display only the two largest clusters that are on either side of the current price.

Profit.Ratio

The Profit Ratio indicator is a sentiment indicator that shows the ratio between winning and losing positions among those currently open with major brokers.

With this sentiment data, day traders are able to find potential points where price is more likely to reverse once again, those traders are forced to liquidate their positions.

The profit ratio indicator is popular among Forex day traders because it allows you, to some extend, to front run the market.

Day traders are able to potentially enter a trade at the very beginning of a price move and therefore take a larger profit by riding the entire move.

2. Signal Indicators

The second group of Forex indicators for day trading, can be defined as signal indicators.

Signal indicators give an alert or warning when some sort of market event occurs such as an indicator or price crossover signal.

They’re used to alert Forex traders that it may be time to open, close or manage a current position that they may already have.

PivotPoints.All-In-One

The Pivot Points All in One indicator draws important pivot points directly onto your MT4 charts.

In order to draw pivot points that matter, the indicator uses only the most popular approaches, including the following:

• Classic.
• Camarilla.
• Woodie.
• Fibonacci.

Pivot points are based on the idea that price tends to reach yesterday’s closing price, much more often than to overcome the previous daily range.

They play an important role in drawing support/resistance levels that are being watched by the most number of eyes.

As a result, pivot points are a type of self fulfilling prophecy, working simply because a large number or market participants think they work.

TRIX.Crossover

The TRIX Crossover indicator is a signal indicator based on the triple exponential moving average.

It’s an MT4 indicator based on one of the most classic technical analysis tools, known as the TRIX.

The TRIX is a triple exponential moving average that actually exists as an oscillator, rather than a classic moving average found directly laid over price.

Sometimes also called the TEMA, it uses only price data to build the indicator and is perfect for day trading as it doesn’t ever re-calibrate once price has been printed.

AutoTrendLine

The Auto Trend Line indicator does exactly what its name says, automatically spotting and drawing trend lines directly onto your MT4 charts.

This indicator displays only trend lines that are currently in play, automatically removing old lines that no longer retain relevance to future price action.

We all know how subjective trend lines can be and the auto trend line indicator prevents inconsistencies when placing them.

Something that is highly beneficial when back-testing a day trading strategy because there are no inconsistencies in which point of the candles you use to draw trend lines.

Support&Resistance

The Support & Resistance indicator spots important levels where price has had an active interaction on the chart, sometime in the past.

It’s an indicator designed to help traders by automatically drawing important levels where price may be more likely to react when it is retested sometime in the future.

The support & resistance indicator can identity levels where price has had the maximum number of price touches or bounces.

It then, draws support levels in blue, while clearly differentiating resistance in orange.

3. Utility Indicators

The third and final group of Forex indicators for day trading, can be defined as utility indicators.

Utility indicators supplement your trading strategy in some way.

They’re used for things that are not specific to your strategy, but supplement your day trading by providing general market information that you may still find helpful.

Trading.Sessions

The Trading Sessions indicator shows each of the global Forex market sessions, directly onto your MT4 chart as coloured boxes.

The indicator allows you to clearly see where each of the session open and close times occur, as well as view any intraday ranges helpful to your day trading strategy.

The four major Forex sessions that the indicator shows are displayed in the following table:

RoundLevels

The Round Levels indicator draws grid lines directly onto your MT4 charts, which highlight round numbers.

When we talk about round numbers, we’re alluding to prices at “00 levels” and “50 levels”. There’s no denying that these levels are significant when you watch price action.

Human beings are strange creatures that look to simplify everything that they do and when it comes to day trading Forex, they look to do business at round number prices.

If you understand where traders are more likely to place their orders, then you’re able to take advantage of flows around them.

FXSSI.Calendar

The Calendar indicator shows the major economic news calendar, directly on the active MT4 chart that you’re trading.

The advantage of this particular calendar indicator is that it doesn’t have an overbearing appearance, giving you only the most relevant information required by a Forex day trader.

In Forex markets, the news release itself is never as important as whether the reaction to the news was over or under done.

This is why the indicator chooses not to show the details of every release, instead, it focuses on the release time and market impact at a glance.

This particular calendar indicator for MT4 is best suited for non-news day traders, who simply require a reminder to be aware of increased volatility around releases.

Spread.Warner

The Spread Warner indicator monitors the value of your broker’s spread and sends a warning when the spread starts to widen.

The indicator helps day traders who take a high volume of trades to avoid executing a trade right as the spread widens.

If the spread is wider than normal, the indicator will send a warning that you should consider waiting for normal market conditions to resume in order to minimize slippage.

This warning can often be a precursor to fast moves as the rest of the market catches on to the lack of liquidity currently available.

Is There Really a Best Indicator for Day Trading?

The short answer to this question is no.

But in saying that, there most definitely are indicators that work better than others in certain situations and day trading strategies.

The best Forex indicators for day trading will ultimately be the one that works best for you and your particular strategy.

You can also consider using multiple indicators at once, possibly pairing indicators to both give trading signals and then filter them so you’re taking only the highest probability trades.

By combining indicators, you’re giving further reinforcement of trading signals, ultimately leading to a higher winning percentage on your day trading strategy.

Whichever combination of indicators you choose to use, make sure you’re testing the results and always refining your strategy as you receive more and more data.

Do Forex Indicators Really Help When Day Trading?

Whether you’re a subjective price action trader, or a mechanical trader who relies on distinct signals to enter and exit trades, indicators can help.

As we’ve highlighted, Forex day traders can use indicators for a variety of uses, both in signals and supplementary utilities like alerting when a major economic release is imminent.

Day trading can be a stressful, requires an intensive endeavor of concentration, so make sure you’re using Forex indicators to help relieve some of the pressure, not add to it.

In order to avoid becoming overwhelmed, consider using only one indicator from each category.

The Best Forex Indicators For Currency Traders

Achieving success in the forex can be challenging. Nonetheless, traders from around the globe, both experienced and novice, attempt to do exactly that on a daily basis. Given the above-average failure rate of new entrants to the market, one has to wonder how long-run profitability may be attained via forex trading.

Among the many ways that forex participants approach the market is through the application of technical analysis. By definition, technical analysis is the study of past and present price action for the accurate prediction of future market behaviour. The premier tools for the practice of technical analysis are known as indicators.

Indicators come in all shapes and sizes, and each helps the user place evolving price action into a manageable context. While there are many indicators to choose from, all are used to either identify market state or recognise potential trading opportunities.

One of the key benefits to utilising technical indicators is the freedom and flexibility afforded to the trader. Indicators are versatile in that they may be implemented in isolation or within the structure of a broader strategic framework. In each instance, their proper use promotes disciplined and consistent trading in live forex conditions.

Selecting The Best Indicators For Active Forex Trading

Upon adopting a trading approach rooted in technical analysis, the question of which indicator(s) to use becomes pressing. In order to find suitable candidates, it is important to first determine one’s available resources, trading aptitude and goals. Through conducting a detailed personal inventory, the best forex indicators for the job will begin to emerge.

In practice, technical indicators may be applied to price action in a variety of ways. Two of the most common methodologies are oscillators and support and resistance levels. Each has a specific set of functions and benefits for the active forex trader:

Oscillator

An oscillator is an indicator that gravitates between two levels on a price chart. Oscillators are designed to show when a security is overbought or oversold. They are frequently used as a barometer to measure pricing momentum as it relates to trend extension, exhaustion and market reversal. Oscillators are strategically valuable as they aid the trader in determining market state, as well as market entry/exit.

Support And Resistance

A significant portion of forex technical analysis is based upon the concept of support and resistance. Support and resistance levels are distinct areas that restrict price action. A support level is a point on the pricing chart that price does not freely fall beneath. Conversely, a resistance level is a point on the pricing chart that price does not freely drive above. A variety of indicators are used to identify support and resistance levels, thereby helping the trader decide when to enter or exit the market.

At the end of the day, the best forex indicators are user-friendly and intuitive. These two attributes assist in the crafting of informed trading decisions and add strategic value to the comprehensive trading plan.

Top 5 Forex Oscillators

Oscillators are powerful technical indicators that feature an array of applications. Whether you are trend following, trading reversals, or implementing a reversion-to-the-mean strategy, oscillators can be a valuable addition to the forex trader’s toolbelt. Below are five time-tested offerings that may be found in the public domain.

Stochastics

Developed in the late 1950s by market technician George Lane, the Stochastic oscillator is designed to identify when a security is overbought or oversold. To do so, it compares a security’s periodic closing price to its price range for a specific period of time.

The driving force behind the Stochastic Oscillator, also referred to simply as Stochastics, are the probabilities involved with random distribution. Typically symbolized by %K, it is essentially a comparison of evolving price action to a relative mean value. It’s derived by the following formula:

%K = ((Closing Price — Range Low) / (Range High — Range Low)) * 100

Stochastics are exceedingly popular among forex traders as they offer a means of quickly ascertaining whether a currency pair is overbought or oversold. They are plotted as two lines on a pricing chart: the current or slow stochastic (%K) and the fast stochastic (%D), which is a specified periodic moving average. Values are interpreted on a 0-100 scale, with 0 indicating oversold conditions and 100 overbought.

In addition to the 0-100 scale, the potential divergence/convergence, or crossover of the %K and %D, also render varying degrees of importance. These occurrences may be interpreted as signals of a pending shift in price action. The versatility of Stochastics make it a go-to methodology for many veteran and novice traders alike.

Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a momentum oscillator used by market technicians to gauge the strength of evolving price action. Developed in the late 1970s by J. Welles Wilder Jr., RSI has become an exceedingly popular indicator among technical forex traders.

Calculating RSI is a mulit-step process and involves measuring relative strength through the comparison of average periodic gains and losses. This is accomplished via the following progression:

• Average Gain: A gain is a positive change in periodic closing prices. To calculate the average gain, all periodic gains are added and then divided by the period itself (Total Gain / Period).
• Average Loss: A loss is a negative change in periodic closing prices. To calculate the average loss, all periodic losses are added and then divided by the period itself (Total Losses / Period).
• Relative Strength (RS): Relative Strength is derived by dividing the average gain by the average loss (Average Gain / Average Loss).

Once RS is determined, the RSI calculation may then be completed:

RSI = 100 — [100/(1+RS)]

Similar to Stochastics, RSI evaluates price on a scale of 0-100. Its primary goal is to determine whether a market is overbought or oversold and if conditions are poised for an immediate change. As a general rule, the closer RSI gravitates toward 0, the more oversold a market may be. Conversely, values approaching 100 are viewed as overbought.

Moving Average Convergence Divergence (MACD)

Invented by Gerald Appel in the late 1970s, the Moving Average Convergence Divergence (MACD) is favoured by forex traders. Like other momentum oscillators, it can be a challenge to derive manually in live-market conditions. Fortunately for active forex traders, modern software platforms offer automated functionality.

Essentially, the MACD is a comparison of two exponential moving averages (EMA), typically with periods of 26 and 12. Through observing whether these EMAs are tightening, widening or crossing over, technicians are able to make judgements on the future course of price action.

The calculation for MACD is as follows:

MACD = [(26 Period EMA) — (12 Period EMA)]

MACD is applied as a chart overlay in conjunction with a Signal Line. The Signal Line is a periodic EMA of the MACD itself; frequently a nine-period EMA. Histograms are also employed to express the degree of variance between the MACD and Signal Line.

Forex traders are fond of the MACD because of its usability. It is a visual indicator, with divergence, convergence and crossovers being easily recognised. Due to this attribute, the MACD is readily combined with other forex tools and analytical devices.

Commodity Channel Index (CCI)

The Commodity Channel Index (CCI) was created and promoted by mathematician Donald Lambert in the early 1980s. It was initially developed for trading commodities futures contracts, but it has been adapted to the forex, CFD and equities markets.

Like other oscillators, the CCI places market behaviour into context by comparing the current price to a baseline value. In the case of the CCI, the moving average serves as a basis for evaluation.

Given the following building blocks, the CCI may be constructed:

Typical Price: ⅓(High + Low + Close)
MA: Moving Average, N periods of typical prices
Divisor: .015
MD: Mean Deviation, N periods of typical prices

The CCI formula is as follows:

CCI = [(Typical Price — (MA)) / (.015 * MD)]

In contrast to several of the other oscillators, CCI is viewed with respect to a channel existing between +100 and -100. Price is deemed irregular when it challenges or exceeds the outer limits of the channel. This is unique from the standard 0-100 scale as the boundaries are not finite. The CCI moves with the market, suggesting that price has a tendency of returning to an adapting mean value.

While the difference between CCI and other momentum oscillators appears negligible, the channel concept dictates unique strategic decisions. Nonetheless, CCI is an easy-to-use indicator and the core concepts of overbought or oversold still apply.

Parabolic SAR

The Parabolic Stop And Reverse, also known as Parabolic SAR or PSAR, is used to identify trend direction as well as potential reversal points. Designed by J. Welles Wilder Jr., the Parabolic SAR is an unconventional oscillator. Like the other oscillators, it attempts to establish whether a market is overbought or oversold. However, it does not employ any sort of standardised scale; simply a series of strategically placed «dots.»

The PSAR is constructed by periodically placing a dot above or below a prevailing trend on the pricing chart. For an uptrend, dots are placed below price; for downtrends, dots are placed above. The product is a visual representation of the prevailing trend, pullbacks and potential reversal points.

Forex traders often integrate the PSAR into trend following and reversal strategies. While choppy and range-bound markets can pose challenges to its effectiveness, the visual simplicity boosts the PSAR’s appeal to many forex traders.

Support And Resistance, Custom Indicators

A variety of technical indicators are used to predict where specific support and resistance levels may exist. In doing so, these areas are used to identify potential forex entry points and manage open positions in the market.

Bollinger Bands

Introduced to the world of finance in 1983 by John Bollinger, Bollinger Bands (BBs) are a technical indicator designed to measure a security’s pricing volatility. Although not intended for defining market entry/exit points in isolation of other market factors, BBs do provide a detailed look at the volatility of a security.

Bollinger Bands feature three distinct parts: an upper band, midpoint and lower band. Each is represented by a line on the pricing chart, tracing the outer constraints and center of price action. The visual result is a flowing channel with a rigid midpoint.

At their core, BBs exist as a set of moving averages that take into account a defined standard deviation. The BB calculations are mathematically involved and typically completed automatically via the forex trading platform. To customise a BB study, you may modify period, standard deviation and type of moving average.

As a general rule, a wide distance between outer bands signals high volatility. Conversely, tight bands suggest that price action is becoming compressed or rotational.

Even though Bollinger Bands are trademarked, they are available in the public domain. Forex traders frequently implement BBs as a supplemental indicator because they excel in discerning market state.

Pivot Points

Pivot points, or simply pivots, establish areas of support and resistance by examining the periodic highs, lows, and closing values of a security. They are a powerful tool for quantifying normal trading ranges, market direction and abnormal price action as it occurs.

In practice, there are a multitude of ways to calculate pivots. One common method begins with taking the simple average of a periodic high, low and closing value, then applying it to a periodic trading range. The pivot value is calculated via the following formula:

Pivot = (High + Low + Close) / 3

Upon the pivot being derived, it is then used in developing four levels of support and resistance:

Resistance1 = (Pivot * 2) — Low
Resistance2 = Pivot + (High — Low)
Support1 = (Pivot * 2) — High
Support2 = Pivot — (High — Low)

Pivot points are used in a variety of ways, primarily to indicate the presence of a trending or range bound market. A general rule is that when price is above resistance levels, a bullish trend is present; if below support levels, a bearish trend is present. In the event price falls between support and resistance, tight or range bound conditions are present.

Pivots are a straightforward means of quickly establishing a set of support and resistance levels. Forex market participants regularly utilise them in breakout, trend and rotational trading strategies.

Average True Range (ATR)

Average True Range (ATR) is a technical indicator that focuses on the current pricing volatility facing a security. Akin to Bollinger Bands, ATR places ongoing pricing fluctuations into context by scrutinising periodic trading ranges.

The primary element of the ATR indicator is range, which is the distance between a periodic high and low of a security. It is computed as follows:

Range = Periodic High — Periodic Low

Range is a flexible calculation in that it may be applied on any period, including intraday, day or multi-day durations. For ATR, True Range (TR) is used instead of normal range to maximise the accuracy of the indicator. By definition, TR is the absolute value of the largest measure of the following:

• Current period high to low
• Previous close to current high
• Previous close to current low

Upon TR being determined, the ATR can be calculated. The process is mathematically involved; at its core, it is an exponential moving average of select TR values. Fortunately for active forex traders, the ATR indicator may be calculated automatically by the software trading platform.

The primary purpose of ATR is to identify market volatility. It is not concerned with the direction of price action, only its momentum. High ATR readings indicate an active market, while low ATRs suggest consolidation. While ATRs do not specifically establish support and resistance levels, they are frequently used to confirm the validity of such price points.

Donchian Channels

The development of Donchian Channels is credited to fund manager Richard Donchian in the late 1940s. Like Bollinger Bands and the ATR, Donchian Channels aim to quantify market volatility through establishing the upper and lower extremes of price action.

Due to their usability, Donchian Channels are a favoured indicator among forex traders. They’re typically applied automatically via a forex trading platform, but Donchian Channels may be easily computed manually. The key element of the indicator is period. Once an ideal period is decided upon, the calculation is simple. The following is a set of Donchian Channels for an 18-period duration:

Upper Band = 18 period high
Lower Band = 18 period low
Middle Band = (18 period high + 18 period low) / 2

Through focusing on the market behaviour evident between a periodic high and low, Donchian Channels are able to quickly identify normal and abnormal price action. Further, the upper/lower bands may be viewed as support and resistance levels because they have previously inhibited price.

The appeal of Donchian Channels is simplicity. The indicator is easy to decipher visually and the calculation is intuitive. These two attributes make Donchian Channels an attractive indicator for trend, reversal and breakout traders.

Custom Indicators

One of the biggest benefits of trading forex in the modern era is the ability to personalise the market experience. Advancing technology has brought the creation of custom charts, indicators and strategies online to the retail trader.

For droves of forex participants, building custom indicators is a preferred means of technical trading. A custom indicator is conceptualised and crafted by the individual trader. Aside from personal preference, it is subject to no predefined constraints and may be applied in any manner deemed appropriate.

Given the robust functionality of modern forex trading platforms such as Trading Station or MetaTrader 4 (MT4), traders have the freedom to construct technical indicators based on nearly any criteria. The only thing limiting the custom forex indicator is the trader’s imagination.

The Bottom Line

At first, technical trading can seem abstract and intimidating. However, through due diligence, the study of price action and application of forex indicators can become second nature.

Whether you’re a trend, reversal or breakout trader, there are many forex indicators to choose from in the public and private domains. To sum them up, the best ones are easy to use and will add value to a comprehensive trading strategy.

Russell Shor

Senior Market Specialist

Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…

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