To learn Forex trading, you need to know the best technical indicators to incorporate in your Forex trading strategy. Here we outline the best indicators – and give some tips on how to use them to make bigger trading profits.
Some of these technical indicators are well known, but some you may never have heard of before. However, they're all fantastic Forex profit tools – if you use them in the right way.
First things first: No indicator works all, the time – or by itself. It's essential to combine several indicators together in order to generate trading signals – and here we will look at the indicators and how to combine them.
If you want to learn Forex trading, you need to spot trends. You also need to confirm entry with momentum of price on your side. So, let's look at the best indicators for doing this:
1. Indicators for Trend Confirmation
Good old-fashioned trend lines are your first clue to important support and resistance. You need to know where important support or resistance is – and you can easily spot this by drawing trend lines.
Moving rates are a great back up to trend lines in order to identify trends. Moving rates combined with trend lines are all that you need.
Many traders simply like to buy into support – or sell into resistance and "hope" the trade is going to go their way. However, to get the odds in your favor, you need to confirm that price momentum supports your view of the market.
2. Indicators for Trading Signals Entry and Exit
When you take a currency-trading signal, you should have short-term price momentum in your favor. If short-term price momentum is not in your favor, then the odds are not in your favor – and you'll lose.
Two great indicators are RSI and Stochastic – and both give an excellent visual picture of the strength of price. You can learn how to visually spot price momentum changes easily and competently with these two indicators. You do not need to understand the equation behind them – just know that they work.
Another useful indicator for defening strength of price is Average Directional Movement (ADX)
Many Forex traders use Bollinger bands and MACD for timing price momentum and entering trades. This is wrong – they essentially gauge depreciation – so only use them for that purpose.
3. Contrary Trading Tools
Do you want to get advance warning of every major trend change – and know when a big move is coming? Of course, you do – and these are the indicators to use:
2. Net Traders Position Report
These two indicators are not commonly used by Forex traders – yet they give you advance warning of all the big trends – and these yield the largest profits.
You need to gauge when to enter (use momentum indicators) – but the% Bullish, and Net Traders Position Report will tell you when the market is ripe for a big move.
Consider this fact: Currency markets tend to have huge trend changes when the fundamental consensus is extremely bullish or bearish – and the% Bullish measures peoples view of the market.
In simple terms when the consensus is over 80%, then price is too bullish. When the consensus is under 20% then price is too bearish – and a trend change is due.
After looking at the tool you can confirm a trend change is due by looking at Net Traders Positions published bi weekly by the CFTC. It relates to the futures markets – but movements in spot contracts tend to mirror the set ups.
You can track hedgers – these are the real pro traders. These traders know the value of a currency – it's their living. You then compare the hedger's positions with the speculators – who always get the major turning points wrong.
If you're trading online currencies and you see hedgers going the opposite way to speculators – and this is backed up by the% bullish being over bought or oversold – then a big move is imminent. It's then time to look at your charts – in order to time an entry opposite to the majority.
In Forex markets contradict trades offer you the largest reward for the lowest risk – and the% Bullish and Net Traders Position Report will help you spot them.
So now you know the best tools, which when combined with your Forex education, could top up your regular Forex trading profits, with a few spectacular gains.