Forex traders use a multitude of data to determine their strategies. One practice that is quite common is to use price action indicators. Traders use these signals to determine where the price is headed and help them to better time entries and exits into trades. For the majority, there are two common types called lagging and leading indicators. Leading indicators signal when a trend or reversal is happening. Therefore, they enable traders to enter a position before the trend and capture all of the profits. Lagging indicators on the other hand, signal that a trend has already begun. Using lagging indicators, a trader can enter a position within the trend.
Leading indicators are most effective when currency pairs are moving within a predictable range. Ultimately, these indicators signal when the prices enter the top or bottom of the trend. When a currency pair enters near the bottom of the range, it is considered oversold and is likely to reverse. There are many leading types of indicators that can reveal buy and sell signals, including the Relative Strength Index and the Stochastic Oscillator. Lagging indicators are used to confirm a trend and useful when a currency pair is trading outside of a range and are ideal for longer term trends. Two most common lagging indicators are MACD and Moving Averages.