Traders Must Know: The 15 Most Core Indicators in Forex and Stocks and Their Practical Applications

Many traders fail in the Forex and stock markets, and the root cause is not bad luck, but a lack of understanding of how to correctly use technical indicators. Trading without guidance is like groping in the dark—uncertain when to buy, when to sell, and how to set stop-losses. But once you master these indicator tools, you’ll be able to precisely capture market opportunities, identify price trends, and determine support and resistance levels.

Why do you always lose money in trading? Because you ignore these tools

In technical analysis, traders mainly rely on three categories of tools: trend charts, price charts, and technical indicators. These indicators are not created out of thin air; they have been developed, validated, and optimized over decades by traders and statisticians. Modern trading platforms have these technical indicators built-in, providing real-time automatic calculations to help you stay on top of market movements.

Depending on their functions, technical indicators are divided into four main camps.

First Camp: Trend Indicators — Identifying Market Direction

Moving Average (MA)

MA is the most basic and effective trend tool. It clearly shows whether the price is likely to move upward or downward in the future. Note that MA does not predict prices precisely but reflects the direction of trend formation. MA is calculated based on closing prices over a specific period.

ADX (Average Directional Index)

ADX is a powerful tool to determine whether a market is trending and how strong that trend is. Its unique feature is—regardless of whether the price is moving up or down, ADX objectively assesses trend strength. This helps traders decide whether it’s worth entering the market.

Ichimoku Kinko Hyo

This complex indicator from Japan consists of five lines (Tenkan-sen, Kijun-sen, Senkou Span A, Senkou Span B, Chikou Span). It can simultaneously display support and resistance zones, and whether a trend exists. Many professional traders call it the “all-in-one” indicator.

MACD (Moving Average Convergence Divergence)

MACD consists of two moving averages and a signal line, used to observe changes in price momentum, trend reversals, and timing. When MACD signals, it indicates that the trend’s direction or strength may be changing.

Parabolic SAR

This indicator is specifically used to identify potential reversals in price. Traders can use SAR signals to determine when to buy, sell, and where to set stop-loss orders.

Second Camp: Momentum Indicators — Capturing Buying and Selling Power

RSI (Relative Strength Index)

RSI, with values from 0-100, tells you the relative strength or weakness of an asset compared to its own historical performance. While RSI is often used to generate trading signals, it works best when combined with other indicators.

Stochastic Oscillator (SO)

SO compares the closing price within a certain period to the price range, helping you identify whether an asset is overbought or oversold. When SO exceeds 80, the market is overheated; below 20, it is oversold. Reversal signals and divergences between SO and price often indicate an impending reversal.

Williams %R

%R functions similarly to Stochastic, used to identify overbought and oversold conditions, but with a slightly different calculation logic and presentation. %R has a reverse proportional characteristic.

Third Camp: Volatility Indicators — Measuring Market Risk

ATR (Average True Range)

ATR visually displays market volatility with a single curve. Traders use ATR to determine reasonable entry and exit points, adjusting dynamically based on market volatility.

Bollinger Bands (BB)

Bollinger Bands are built around a simple moving average. When prices touch the upper band, it indicates overbought; when touching the lower band, oversold. Many traders find combining BB with MACD and RSI yields stronger trading signals.

Standard Deviation (SD)

SD measures how far prices deviate from the moving average. Larger SD indicates higher market volatility. High SD often suggests the current volatility phase is ending, and the market may enter consolidation. Traders use SD to optimize entry points.

Fourth Camp: Volume Indicators — Confirming Buying and Selling Intent

MFI (Money Flow Index)

MFI considers both price and volume to evaluate overbought or oversold conditions. By observing MFI changes, you can anticipate trend reversals. MFI fluctuates between 0-100; low levels attract buyers, high levels attract sellers. MFI is often used with Elliott Waves and Fibonacci levels.

A/D Line (Accumulation/Distribution Line)

A/D line, based on volume, high and low prices, shows trend direction and divergence signals. When prices rise but A/D declines, it indicates insufficient buying pressure to sustain the rise, suggesting a potential reversal.

OBV (On-Balance Volume)

OBV assesses buying and selling pressure through volume and price relationships. Its core logic: if today’s close is higher than yesterday’s, today’s OBV = yesterday’s OBV + today’s volume; otherwise, OBV decreases. Rising OBV indicates active buying by traders.

Quick Reference: Technical Indicator Category Chart

This table helps you avoid using indicators from the same category repeatedly and encourages cross-category combinations for complementary insights:

Note: Bollinger Bands and Ichimoku are considered multifunctional indicators and can be used alone in specific strategies. Volume indicators are generally used to confirm the strength of trends indicated by other tools.

Practical Rules: How to Use 4 Indicators for a Perfect Trade

Mastering a single indicator is easy; the challenge is knowing the right timing, market conditions, and the right combination to maximize effectiveness. Here is an empirical example using RSI, Ichimoku Cloud, Bollinger Bands, and OBV for a buy operation:

Step 1: Price must break through and close above the middle line of Bollinger Bands

After opening, first confirm that the price has broken through and stabilized above the middle band of Bollinger Bands. This is a prerequisite for the next filtering step.

Step 2: Wait for RSI to rise above 50 (if not yet)

Observe the relationship between Bollinger Bands and RSI. If momentum indicators lag behind the price trend, it suggests an upcoming breakout. Usually, RSI above 50 indicates positive momentum. Note: It’s not always synchronized; sometimes patience is needed for momentum to build.

Step 3: Confirm OBV is increasing — volume is the final validation

The key final step is to ensure there is enough buying power supporting your buy decision. An increasing OBV confirms this strength. Once confirmed, immediately set a stop-loss to protect your capital.

Step 4: Set stop-loss below the lower Bollinger Band

Precise stop-loss placement is crucial. The ideal stop-loss is just below the lower Bollinger Band. Setting it below the band can lead to excessive losses, which must be avoided.

Step 5: Take profit when price breaks above the upper Bollinger Band

For profit-taking, focus on signals from a single indicator. Relying on multiple indicators may cause delays or missed opportunities. The best strategy is to close immediately when signs of reversal appear. When the price breaks below the lower Bollinger Band, it signals a perfect reversal—this is when to lock in profits.

These five steps form a complete example of using multiple indicators in forex for a buy trade. For a sell strategy, the logic is simply reversed.

Conclusion: Indicators are tools, but wisdom is required

Technical indicators are an essential methodology for wise investing. Once you truly master how to use these tools, you’ll gain a clear advantage in the market, and each trade will be more confident. But always remember—indicators are not perfect prediction tools; they can produce false signals. That’s why you need to combine multiple indicators across categories, and through practical experience, gradually hone your skills to become a master.