How To Trade Forex Indicators

Forex Indicators are a great way to trade for living in the FOREX markets

. In this article you will learn the basics of trading with indicators and several useful indicators for beginners traders.

Indicators are a calculation done on price that is used to predict the future direction of a FOREX pair. The simplest indicator is a Moving Average: it is defined as the average of the last 14 bars. This is a technical study that can be used to trade the market. There are many indicators that are used in trading, and this article will not cover them. However, we will present several key notes that will improve your trading.

Tip #1: Confirm using several indicators

If you are trading with one indicator you are only seeing one dimension of the market, and use only one calculation to reach your trading conclusions. Using several indicators as confirmation can enhance your trading decisions and make them more powerful and profitable. Try to use indicators that are different in nature, for example, use Moving Averages alongside Relative Strength Index. This will ensure that the trade is confirmed using several calculations and will increase win rate.

You can also confirm using the same indicator, with different period. For example: use 14-bars Moving Average for trading signals and 50-bars Moving Average as confirmation. This way you combine confirmation from the longer trends, which supports your short-term decisions.

Tip #2: Use Price Action

Indicators are good for generating trading signals, but when they are combined with price-action they can explode your trading profits to the stratosphere. Learn about breakouts, pullbacks and patterns and use them in your trading. These are powerful technical analysis tools that are no weaker than indicators. The more aspects you confirm your trades with, the higher your win rate will be and the more profitable your trades. Confirm breakouts with trend-following tools, and confirm pullbacks with contrarian tools such as the RSI or CCI.

Tip #3: Learn the Logic behind the Indicators

Don't just analyze the indicators in the traditional methods. Instead, learn how they are calculated and research other, profitable trading methods that can lead to greater profits. Ken Woods did just that when he invented the Woodies CCI system: instead of analyzing the CCI like anyone does, he invented a complete method of patterns in the CCI indicators to reach his signals - much powerful than the traditional one. By learning the logic behind the indicators you trade, you will learn what the signals represent in terms of price-action, and will know much better how to confirm your trades. You should know that the CCI actually represents the distance of price from its moving average, and that the Stochastic is showing the location of price relative to support and resistance. This will help you reach a more thorough understanding of the markets.

by: Jack Sels

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