Indicators are the best trading tools for Forex. They are reliable, consistent and produce objective signals that usually require little or no interpretation. Indicators can indicate that a pair is overbought or oversold, gauge trend power and produce precise reversal signals. In this article we will present 3 tips for improving your indicator trading.
Tip # 1: Higher Timeframe – Greater Profits
The higher the time frame you trade on, the stronger your signals will be and the more profitable your trades. Try not to trade on timeframes less then 15-minutes as they rarely produce quality signals and most trades are plain noise. Moreover, when trading in 1-hour or 4-hour timeframe you will have more time to react and plan your trades ahead, which also improves your execution. You will have more margin for error and time to analyze and confirm your trades.
Tip # 2: Confirm with Different Indicators
When confirming trading signals, do not use indicators from the same family – instead, use different indicators that are calculated in several unique methods. This improves the quality of signals and confirm your trades with several market analysis techniques. For example, do not confirm moving averages with the MACD or Commodity Channel Index with the Relative Strength Index. Combine different indicators to produce your signals and your performance will improve sharply. For extra confirmation, you can confirm trades on the timeframe you trade with indicators that are placed on a higher time frame. These indicators are called – multi timeframe as they plot values of a higher timeframe in your current chart. A wise use of multi-timeframe indicators can greatly increase your win rate and increase profitability.
Tip # 3: Optimize and Experiment!
You will rarely reach the best indicator setting at the first time you plug it in your trading platform. Take the time to inspect and learn about each indicator you use, and experiment with different settings. Remember that each currency has the best settings which will fit it perfectly. Some pairs are more volatily and require quick action while other need a less sensitive indicator. By experimenting and optimizing the settings of the indicators you use, you will find more profitable setups that will improve your performance.
Tip # 4: Understand the Calculation
It is of utter importance to fully understand the calculation of each indicator you implement in your trading. The calculation of the indicator presents the trader the core of his trading decisions, and a thorough understanding can even lead to a different interpretation – and sometimes a more profitable one. Study the formulas behind the indicators and try to improve if possible. The results can be surprising!