Any indicator based on the embedded algorithm processes the price movement and displays the result in graphical form. Theoretically, any indicator should significantly help traders in analyzing the situation on the market, but this statement is not always true. And free Forex indicators are not worse than the paid ones.
All indicators can be divided into 3 categories:
- trend – follow the already established trend (i.e. slightly delay relative to the price chart). These include Bollinger Bands, CCI, MA, etc.
- oscillators – indicators that excellently work during lateral price movements, for example, MACD, Stochastic.
- volume indicators (or psychological indicators) – they can hardly be used for building a trading system. Indicators of this type are suitable for more general information about the mood of traders.
Many traders, especially beginners, are confident that only paid product can be good, so they don’t even pay attention to the free Forex indicators. Meanwhile, any trading terminal has a powerful set of predefined indicators, which is enough to build a working trading strategy.
Free Forex indicators in real life
The main condition for effective trading in the Forex market is a thorough understanding of the operating principle of the instruments used in trading. This rule is often violated by the newcomers in the market of currency speculation. They rush from one extreme to another: some are convinced that indicators only hinder trading, the others believe that more indicators increase the chances of success. Both are wrong.
The ideal option would be to use no more than 2 - 3 indicators, whose readings are reliable. Indicator may also complement the trading system based on technical analysis, but most important thing is that the trader must understand the algorithm of the selected tool. Meaningless jumble of indicators will make trading impossible.
When building the trading system, you should be aware that different types of indicators (trend, oscillators and volume indicators) don’t work well together. For example, in a trend area Stochastic will just get stuck in the overbought/oversold area (depending on the direction of movement), giving one false alarm after another.
Free Forex indicators for building a trading system
When building the indicator trading system, it is recommended to use at least 2, but not more than 3-4 indicators. One for trend identification and 1-2 more indicators to determine the exact point of entry into the market and the size of the SL and TP.
Free Forex indicators can act as a complement to the tools of technical analysis. For example, to search for the completion of corrective price movement, you can use Fibonacci levels and Stochastic. In fact, it’s a ready trading system.
In this trading system the possibility to enter the market will be considered only after the price correction came within one important Fibonacci levels (the level of 38.2% is the most interesting one, followed by 50% and 61.8%). Entry into the market will be based on the reading of Stochastic Oscillator: for a deal to buy, the fast line must cross the slow one upwards in the oversold area, for a deal to sell the conditions are opposite.
Thus, the indicator available in any trading platform has become part of a functioning trading system. This confirms the fact that free indicators are enough for profitable trading in the foreign exchange market.Social button for Joomla