Taking a Technical Approach to Forex Trading

Indicators

Technical analysts also use indicators to forecast price movements. Indicators are typically based on calculations of price and volume. Indicators can either be laid on top of the chart or in a window below it.
Indicators are typically broken down into groups and when selecting indicators to help assess the market it is important not too select multiple indicators from the same group or else you would be over optimizing your analysis. There are five main groups for indicator:
•  Trend
•  Volume
•  Overbought/Oversold
•  Momentum
•  Volatility

Typically you want to use two or three good indicators, each from a different group. One way that technical analysts use indicators is by quantifying rules for a trading system based on the indicators and programming it into software such as the Metatrader 4 platform and back testing it to see the results that the usage of the indicators would produce historically.
Although past performance is never a complete indication of future results it can shed some light to technical analysts of the quality of their indicator based trading system.
The key to success with a trading system is that it should have an edge when tested out historically. An edge is determined by the system's expectancy. Expectancy is how much you should expect to make on each trade. It is calculated using the formula below: (% of winning trades)(Average profit) - (% of loosing trades)(average loss)
This information is provided by many back testing platforms such as MT4.

Below are some examples of technical indicators and some brief explanations on how they can be used by technical traders to forecast the markets.