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Use these two forex indicators to know when to buy and sell for profit

by , 13 August 2015

Oscillators can be very useful to identify when the price path of a currency pair is changing.

You can use them to check if a currency pair is overbought or oversold. And you can use them to identify when it's time to enter and exit trades.

These two oscillators are the moving average convergence divergence (MACD) and the relative strength index (RSI).

Let's take a closer look at each of them…


Forex indicator #1: Moving average convergence divergence (MACD)


The basis of this forex indicator is exponentially smoothed moving averages. The MACD has two exponential moving averages plotted against a zero line.

You can see how the MACD looks on the chart below…


Chart showing the MACD


The zero line shows when the values of the two moving averages are the same and crossover.

The MACD also gives off signals when the shorter moving average crosses the longer moving average line.

The MACD generates a buying signal when there’s an upward crossover and generates a selling signal when there’s a downward crossover.

For trading forex, the default setting for the MACD work well. They generate accurate buy and sell signals.

These are:

  • The fast exponential moving average: 12;
  • The slow exponential moving average: 26; and
  • The signal line: 9 slow moving average.


Forex indicator #2: Relative strength index (RSI)


This popular forex indicator looks at the changes between the higher and lower closing prices.

The RSI uses a scale of between 0 and 100. You can see how this looks on the chart below…


Chart showing the RSI


When the RSI line hits over 70 this is a warning signal that the currency pair is overbought. When the RSI line hits under 30, this is a warning signal that the currency pair is oversold.

The RSI generates a selling signal when the line goes above 85 and generates a buying signal when the line goes below 15.

When using RSI, set it at nine periods for the most accurate signals.

So there you have it. How to use these two forex indicators to know when to buy and sell for profit.

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