Forex trading indicators are a tool that, if used properly, can ensure lucrative and secure trading. At the same time, the thoughtless use of indicators may cause the deposit siphon off and loss of interest in currency speculation.
Not all categories of indicators can be used directly for transactions. Volume indicators (or psychological indicators) don’t give the trader the opportunity to clearly define the moment to enter the market and calculate the values of SL and TP. Indicators of this type are used only to understand the situation prevailing in the market.
In trading, the traders rely primarily on oscillators and trend indicators. In areas with horizontal price movement (flat), the oscillators like Stochastic, RSI, and MACD perform excellently.
But in the areas with a pronounced movement, the oscillators will give one false alarm after another. In this situation, such indicators are used as moving averages (MA), Parabolic SAR, Bollinger Bands and others from the trend group.
How to use Forex trading indicators
A pretty common mistake of the beginners is that they use a large number of indicators from different groups. As a result, due to the abundance of conflicting data, it becomes impossible to analyze the situation on the currency market. Lucrative trading in such circumstances is unlikely.
An excessive trust to the indicators can be regarded as another mistake. It is understood that Forex trading indicators analyze the situation on the algorithm created by a human. Therefore, there may be situations when the indicator gives a wrong signal.
Based on this, we can formulate the basic rules for the use of indicators:
it is not recommended to use a large number of indicators. This won’t ease, but rather complicate trading;
you should not rely solely on the readings of the indicator in trading. Even the most reliable indicators can make mistakes;
the best trading systems can be considered the ones where graphical representations, candlestick combinations, Fibonacci retracement levels are used in addition to the indicators readings. However, this does not exclude the possibility of the existence of profitable indicator systems.
Forex trading indicators in real life
To create a trading system, it is important to choose the right tools for the market analysis. Moving averages can be used to identify a trend. RSI and MACD indicators can be used to search for divergences.
Identification of trends will be carried out on the h4 timeframe by the EMA moving average location with a period of 200 (applied to close prices). To enter the market, you need to analyze the price location regarding the moving averages EMA55 and 21.
The deal is made after the breakdown of moving averages EMA55 and 21. Minimum goal in this case is the price reaching EMA200. RSI and MACD (with default settings) play the role of filters that allow to exit the market if the situation is not in the best way.
Indicators readings played a leading role in the presented strategy, but it does not prevent it to show a good result on the EUR/USD pair. This confirms the fact that Forex trading indicators, if used properly, can ensure lucrative trading.Social button for Joomla