I will show you the indicators most used by professionals in Forex trading. Use these indicators and you will have the same level of information as daytrading professionals in banks. You should include this data in many of your trading decisions and learn how to use it. Your trading will benefit enormously.
Bollinger Bands are used to determine market volatility. End Bands occur with low market volatility. The bands widen as volatility increases. In addition, the margins can be handled as support or resistance lines.
Bollinger Bounce Trading Strategy
The price always tends to return to the middle of the bands. You buy by touching the lower band and sell by touching the upper band. This strategy is best used in sideways markets. Take profits with you in the middle.
Bollinger Squeeze Trading Strategy
This is a break out strategy, because if the bands tighten, volatility decreases and we buy or sell when we break out of this situation. In most cases, the trend then goes in the longer term in the direction of the outbreak.
MACD trading strategy
The MACD indicator is used to detect trends and trend reversals at an early stage. A MACD consists of a fast and a slow moving average and a histogram that measures the distance between them. However, these are MAs of other MAs and not of the price. Because the price is represented here by several MAs, there are delays in the response of the indicator. Nevertheless, the MACD is popular because its significance is strong. For buy signals, use a cross situation, i.e. when the fast MA cuts the slow one.
Parabolic SAR Trading Strategy
SAR means Stop and Reversal, so this is about a recognition of the trend reversal. The indicator can be used very easily. You buy when the points are below the price and sell when the points are above the price. This signal is also used for Stop Loss determination. This works best in trend markets.
Stochastic trading strategies
The Stochastic shows us if the price is in an extreme range, i.e. if it is oversold or overbought. A successful method is to sell if the price is in the Stochstic range above 80 or buy if it is in the 20 range. As a special tip, you can only enter here when the price has just left the range.
Relative Strength Index RSI Trading Strategy
Similar to the Stochstic, the RSI also shows overbought and oversold situations. They buy at 30 and sell at 70. In addition, the RSI is often used as trend confirmation. An up trend occurs when the RSI is above 50 and a down trend occurs when it is below 50. Especially on daily charts this is a very good indicator.
Average Directional Index ADX Trading Strategy
The ADX shows you how to start a trend. It ranges from 0 to 100 and values below 20 indicate a weak trend and values above 50 indicate a strong trend. You use the ADX to determine whether a trend continues or weakens. With weakening trends it is better to close trades, so the ADX is important for your profit taking.
These indicators will give you powerful tools. Through you to your MT4 demo account and you will see how much more advantage you get over other traders.
Forex Indicators II: Overbought Oversold Indicators
Oscillators are suitable for a forex indicator strategy against the prevailing trend as well as for trend-following approaches. Oscillators owe their name to the fact that their graphical representation shows an indicator fluctuating around a zero line or a 100 percent line. The indicators are based on the measurement of market momentum, which measures the speed of market movement. The implications depend very much on the market situation.
In the run-up to trend changes, it can often be observed that oscillators, in contrast to prices for example, do not form a new high or low, which is referred to as a divergence between price and indicator. In the “textbook example”, an upward market reaches a new high, which is not confirmed by a new high in momentum. In this constellation, anti-cyclical action may be appropriate.
Most oscillators are equipped with overbought/oversold levels: if the indicator runs into one of these ranges, the probability of a correction increases empirically. However, it would be negligent to open an anti-cyclical position only due to an overheating of the market indicated by oscillators. Thus, an oscillator like the RSI or the Stochastics can assume extreme values in an intact trend over a longer period of time.
There are hundreds of types of forex indicators. However, many hardly differ in the calculation. Often the difference is even reduced to standard settings in the parameters. The final understanding of individual indicators requires precise knowledge of the calculation method. Traders should not limit themselves to a purely verbal Forex indicator explanation without a formal basis.