What Indicators Work Best in FOREX With Ranging Markets

When the FOREX market is making higher lows in an uptrend and lower lows in a downtrend, this market action is referred to as a "trending market." When this specific market action is not present, then the market action is referred to as a "ranging market." Specific technical indicators have been developed by technical analysts that focus on this specific type of market action.

Frequency
FOREX range traders typically have more frequent trading opportunities than pure trend traders because the FOREX markets are ranging approximately 80 percent of the time. Given this high number, many traders focus on this specific market action for their trade entries. These market entries are identified through the use of ranging market indicators. There are numerous indicators available with online FOREX brokers that perform this task with a high degree of accuracy.

Indicators
Five popular ranging market indicators typically utilized by FOREX traders are: 1) Commodity Channel Index (CCI), developed by Donald Lambert; 2) Relative Strength Index (RSI), first introduced by Welles Wilder; 3) Moving Average Convergence/Divergence (MACD), developed by Gerald Appel; 4) Stochastic Oscillator, developed by William Blau; and 5) Bollinger Bands (BB) created by John Bollinger. These five indicators are found as a standard feature in almost all trading platforms in use since 1999.

Style
An very important variable to consider when choosing an indicator to assist with trade entries in the FOREX market is each trader's style. For example, a trader who prefers to get in and out of a trade in a matter of minutes with a very small profit is called a scalper. A day trader is a trader who gets in and out of a trade within the same trading session. Once this determination is made, then a side-by-side comparison of the five most popular ranging market indicators can begin.

Comparisons
A popular feature available through almost all FOREX brokers is the "demo" platform. Use of this feature will enable traders to compare these five indicators on a side-by-side basis without risking any real capital. Instructions for setting up a demo account can be found in the broker's frequently asked questions section on its website.

Option
An very informative way to evaluate these five indicators is to place each indicator on a single currency pair chart. Thus, to do a full side-by-side comparison of all five indicators on the EURUSD pair, one must simply drag and drop the indicator onto that EURUSD chart. Once all five indicators are present, using the suggested indicator settings (also available on the broker's demo platform), a full comparison can begin. Often, a trader will find that he prefers to use one indicator for a trading signal, but will wait until a second indicator also confirms this trade entry before executing the trade.

Conclusion
After analyzing the trade signals generated by each of the five indicators for several weeks, a trader will begin to get a feel for which indicators he feels are the best for his style and temperament. Usually traders prefer to enter trades based upon a combination of indicator signals. For example, a trader may feel that the best trading opportunities for him may be if MACD gives a trade entry signal immediately followed by a Bollinger Band signal.