5 Essential Forex Technical Indicators For Any Serious Trader
Open up any charting program and you'll be swamped with dozens of different Forex
technical indicators that you can use to analyze the markets and identify trade opportunities. The problem is, you can't fit them all onto a chart, and even if you can, you're not going to be able to consider all of them without getting a massive headache! So which ones should you use, and which ones should you ignore?
Personally I like to keep things simple, which is why I limit myself to a maximum of 5 Forex technical indicators on my chart at any given time. These indicators are the Simple Moving Average (SMA), Moving Average Convergence Divergence (MACD), Relative Strength Index (RSI), Average True Range (ATR) and Fibonacci Levels. These 5 indicators guide me through my trade decision making process, and have saved me more than once from making a bad trading call. Here's why I consider these my 5 essential Forex technical indicators:
Essential
Forex Technical Indicators #1: Simple Moving Average
Using a moving average is absolutely indispensable because it denotes the average price over a period of time. Typically, if the prices are consistently above the average, that tells me that the trend is up and vice versa. When the prices dip back to the average area, or even slightly beyond, I'll observe whether there's a support there. If there is, the trend is likely to continue and I'll take the opportunity to enter with a low risk.
In terms of the settings, I like to use the Simple Moving Average over the Exponential Moving Average (EMA). Based on my observations of Forex analysts in the major institutions, they all base their analyses on the 20 period SMA, so it pays to know what the smart money is looking at when making my own calls.
Essential
Forex Technical Indicators #2: Moving Average Convergence Divergence
The MACD and the MACD histogram is the second of my favorite Forex technical indicators, because it tells me where the trend is - whether it's a developing trend or whether it's close to exhaustion. Typically, you'll observe that as the up trend develops, the MACD histogram will tend to make higher highs and sometimes never even fall below the 0 line. The same goes for a down trend, the MACD histogram will tend to make lower lows at it progresses. As long as the extremes of the histogram are increasing, I'll have confidence that the trend will continue and it's safe for me to trade in the direction of the trend.
One of the strongest reversal signals I know is the divergence in the MACD histogram. For example, when the prices are making higher highs in an uptrend, but the MACD histogram doesn't make a higher high, and vice versa for a down trend. When I observe this signal, it tells me that the trend is running out of steam, and I should get out and preserve my profit.
Essential Forex Technical Indicators #3: Relative Strength Index
The Relative Strength Index was built to signal overbought and oversold areas, but these days prices are known to go way beyond the limits of 70 and 30 which are meant to denote the overbought and oversold zones, especially in Forex. I personally don't use the RSI to signal my exit points, but I do avoid entering a long position if the RSI is above 70, and shorts when the RSI is below 30.
Essential Forex Technical Indicators #4: Average True Range
I use the average true range as a measure of the volatility of the market, and it is very useful for me in a couple of ways. Firstly, if the ATR is extremely low and declining, that tells me that the market is likely to continue in a sideways movement for a while yet. That allows me to stay out of the market and avoid whipsaw losses. When the ATR starts rising strongly, that means that the volatility is increasing which signals the beginning of a trend - an ideal time to enter if the prices are around the average zone. Finally, if I'm in a trade and the ATR starts falling off again, that tells me that the trend is running out of steam for now, and I will lighten up my positions or exit them altogether.
Essential Forex Technical Indicators #5: Fibonacci Retracement Levels
Ah, the famed mystical Fibonacci Retracement Levels. I've saved these for the last, because I used to be very skeptical about them myself. Then I observed that many Forex analysts were using them in their recommendations, and found out that many traders took notice of these lines as well. As I began to use these in my trading, I found that these Fibonacci retracements often acted as a support point, especially at the 61.8% retracement levels when they coincided with the SMA levels. Again, it pays to know what the smart money is looking at, so ignore this at your own peril.
So there you have it, the 5 essential
Forex technical indicators that I use to analyze my trades and make my trading calls. Feel free to experiment with them, and add them to your trading arsenal as you see fit.
by: DivisaFX
Growing Perfect Summer Garden Plants Tips On How To Choose Window Curtains Changes That Should Alert You About Drug Abuse Did You Hear That Thud? Reaping In The Benefits Of Oslc Integration Window Replacements How To Get Rid Of Termites Destructive End Result Of Drug Abuse Choosing The Best Toy For Your Dog Fun Facts To Know When Heading To Key West The 3 Best Metatrader 4 Expert Advisors Of 2012 Fun-filled Vacations With Cheap Holiday Packages Zeek Rewards - In Regards For The Bid Give Supervisor Alongside With All The Prc Requirement!