Technical Indicators – A Few Useful Tips
Technical indicators are used by the vast majority of forex traders because they can help you to identify strong trading positions. It is possible to trade just using price but it’s a lot easier if you use certain technical indicators as well. So how can you successfully use these indicators?
Well firstly I would say that you should do thorough research on a wide number of indicators before you start trading for real, and choose the ones that give the best market signals. This will involve a lot of back-testing and will take a lot of time, but it will be worth it because you will be able to identify those indicators that are the most beneficial.
It’s important to note that you are not necessarily going to increase your overall profitability by using more technical indicators. In fact I would advise just choosing a few select ones otherwise you will simply get confused because there will be too many conflicting signals. Plus you will often find that when you use a lot of indicators at once, a lot of these will basically tell you the same thing as they are derived from the same kind of data, so they are effectively redundant.
I personally think the most useful indicators are the most common and most widely used ones such as the MACD, RSI, Stochastics and Moving Averages. There are plenty more you can use but these are good ones to start off with.
Another point I want to make about technical indicators is that is can sometimes pay to tweak your favourite technical indicators in order to increase your overall profits. For instance a lot of forex traders simply try out various indicators but only use the default settings. However you will often find that playing around with these settings can improve your results, particularly if you are using shorter time frames.
For instance some of the default settings for certain technical indicators were designed many years ago and are most suited for longer term share traders. So it stands to reason that these same default settings may not prove to be as effective if trading currency pairs using short time frames such as 1 minute or 5 minute charts.
So to sum up this article, you should always play around with technical indicators in order to optimize them and maximise your overall profits, but you should also make sure you don’t use too many. Some of the best trading methods just use price and a few chosen indicators, and this is probably the best approach to take as too many will lead to confusion and mixed trading signals.
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