Best Forex Indicator

The Best Way to Trade With MACD Indicator

Wednesday, February 16, 2011

The MACD indicator is one of my favourite indicators among so many different indicators and it has never been omitted from any one of my trading strategies.

Unlike other indicators, the MACD can be used for more than one way and it is very versatile. There are 3 ways you can make use of this indicator but in this article, I will be talking about the best way you can trade with MACD.

The divergence of MACD is one of the most reliable trading signals that you can get from your chart. There are 2 main types of divergence namely positive and negative divergence.

1) Positive Divergence: This is formed when the market makes lower lows while the MACD indicator makes higher lows. This is an indication that the market is going to reverse from a downtrend to an uptrend. The divergence is a leading indicator as it is usually signaling to you that the market is reaching its reversal point. However, you should not think that it will reverse immediately. Some reversal happen sometime after the divergence is formed.

2) Negative Divergence: To form the negative divergence, the market will need to make higher highs while the MACD makes lower highs. This is an indication that the market is reversing its direction from up to down.

The best way to trade the MACD divergence will be to make use of a trend line, you should only enter your trade when the price breached the trend line in the direction of the divergence.

What MACD & RSI Mean in Forex Trading?

As a forex trader your main objective must be to become a profitable trader. In order to achieve this goal, it is vital that you learn how to use the widely known technical indicators. These are very useful parameters that will tell you with a high probability what the forex markets are more likely to do in their apparently disordered behavior as observed on the forex charts.

Among these indicators you will find the MACD and RSI; but what’s the meaning of these letters?, you may be asking yourself. Well, here is the answer:

Moving Average Convergence Divergence: MACD is a more detailed method of using moving averages to find trading signals from price charts. Developed by Gerald Appel, the MACD plots the difference between a 26-day exponential moving average and a 12-day exponential moving average. A 9-day moving average is generally used as a trigger line, meaning when the MACD crosses below this trigger it is a bearish signal (time to sell) and when it crosses above it, it's a bullish signal (time to buy). More information here; [http://www.1-forex.com]

As with other studies, traders will look to MACD studies to provide early signals or divergences between market prices and a technical indicator. If the MACD turns positive and makes higher lows while prices are still tanking, this could be a strong_buy signal. Conversely, if the MACD makes lower highs while prices are making new highs, this could be a strong bearish divergence and a sell signal.

RSI stands for Relative Strength Index. The RSI measures the markets activity as to whether it is over bought or over sold. It gives a trader an indication as to which way the Market is moving. It is important to note, that this is a leading indicator and thus allows one to see what the market is about to do and then act accordingly. The higher the RSI number, the more over bought it is and conversely the lower the RSI number, the more over sold it is. It is a great leading indicator for the micro and macro reversals in the forex market. By using an RSI on the 1 minute chart set at a period of 18 and overlaid on the bottom of your charts tend to give the best entry signals. This can also be applied to the 5-minute chart as well. The two significant entry numbers are 25 and 75.

Forex Technical Analysis Basic Concepts

Most forex traders around the world will agree with the trading school that considers technical analysis as the most precise way of trading the forex market. This trading school bases its confidence on technical trading by considering that all available information on a particular currency pair, along with its influence on the markets and the community of forex traders is already reflected in that particular currency price.

Even if you have barely look at one forex chart, I'm pretty sure that you must have noticed that the forex market moves along clear trends most of the time, and experience has shown us that these patterns tend to repeat with time, a useful characteristic that makes this market specially suitable for technical analysis tools to work at their best.

There is a saying among forex traders stating that those who trade with the trend will have a much higher probability of being profitable at the end of the session than those who haven't learned how to pinpoint a trend in the charts.

Here is where technical analysis enters into the picture. In order to correctly determine the trend of the forex market you need to use the tools provided by technical analysis, also known as technical indicators. By using them correctly you will be way ahead of most traders that haven't took the time to understand these great trading tools.

Also it is important for you to understand that technical analysis and its indicators are not magical or something that performs miracles for your trading account. You must have a criteria and be wise in how you manage the money in your trading account, so you won't be left with a zero balance in a bad market move.

For example, two useful technical indicators are these: MACD and RSI. The first one stands for Moving Average Convergence Divergence and the second stands for Relative Strength Index.

The MACD indicator is used to plot the difference between a 26-day exponential moving average and a 12-day exponential moving average. Most of the time a 9-day moving average is used as a trigger line, what this means is that as the MACD crosses below this trigger it is a sell signal and when it crosses above it, it's a buy signal.

Now, the RSI is used to measure the market activity, in other words it monitors if the market is overbought or oversold. This way the RSI gives the forex trader an indication relative to the direction the forex market is moving. The higher the RSI number is, the more overbought the market is. The lower the RSI number, the more oversold the market is.

RSI - Relative Strength Index - Technical Analysis Indicator For Stocks - Futures - And Forex

The RSI (Relative Strength Index) is a popular technical analysis oscillator. There are numerous uses of the RSI, including objective buy and sell signals and bullish and bearish divergences. The RSI, as its name implies measures the relative strength of price currently compared to the past: the formula usually uses a 14-period input. As an oscillator, above 70 is considered overbought and below 30 is considered oversold.

Some traders use the RSI for objective buy and sell signals. They usually interpret a buy signal as occuring when the RSI crosses back above 30 after spending time in the oversold area. A sell signal is declared when the RSI moves back below 70 after spending a period of time in the overbought region. The RSI as well as buy and sell signals is visually depicted in the link to the chart Relative Strength Index.

Another popular use of the Relative Strength Index for stock, futures, or currency traders is bullish and bearish divergences. At times when price is increasing, but the RSI is falling or not moving, this can signal trouble. This bearish divergence can suggest that a trader exit his/her position.

In contrast, when price is falling, but the RSI is failing to go lower, but is maintaining steady or rising, a bullish divergence has occurred. A trader might exit any short positions.

The RSI is a very useful tool for traders and is quite versatile. To learn more about technical analysis, visit http://www.onlinetradingconcepts.com/TechnicalAnalysis.html . There are over 66 technical indicators with explainations and charts with examples.

Trading is inherently risky; only trade with money that you can afford to lose. Past performance is not indicative of future performance.

Forex Indicators - Which Are the Best Ones?

There are several indicators or charts used in Forex market now. They differ in the methodology but they all have the same purpose and goal: To help traders predict what will happen due to fluctuating rates. This way they know when to enter and when to exit a trading position. The Best Forex indicators are the charts. That's not all you need to watch, but it's where you watch to decide where to enter and exit trades. And that's the most important thing.

Forex markets are for the big banks and governments. You can trade too - However, like a mini-bike and a transfer truck, you might want to stay out of their way when they are getting into the market each day. Therefore, a novice trader or an expert needs to learn these indicators and be sure that you know how to apply them. The two most commonly used and best Forex indicators are candlestick method and Fibonacci Method.

Especially when money is involved, one should always play safe to protect against heavy losses.

Candlestick Charts

The Candlestick chart was created by the Japanese over 200 years ago by a guy named Munehisa Homma. He made a lot of money from his rice exchanges. He simply used his past prices to forecast future price movements. The same concept works for Forex.

The candlestick chart is the most widely used technical indicator. It shows price for a specified period. Usually, in stock markets this could be in daily charts, while for currency markets, it could be a 1 hour, 4 hour or 8 hour chart, depending on what you want to predict. However, using it anything less than an hour is not advisable for it does not give you a reliable measure for currency markets. This mainly displays the open, high, low and close (OHLC) for the period you choose. If the chart has colors, green is for up, and red is for down. I love candlesticks. I think they are the best of the best Forex indicators, and I use them every day.

It's commonly recommended that you use candlesticks along with other indicators. Candlestick charts can be easy enough to read once you get a feel for them.

Fibonacci Chart

Leonardo Pisano Bogollo also known as Leonardo Fibonacci or simply Fibonacci was the most talented mathematician during Middle Ages. He formulated the Fibonacci numbers which appears like 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, --. Each subsequent number is the sum of the previous two. For example, the number that comes next to 34 is 55. It is basically, adding 21 to 34 and the sum is 55. See? It is pretty easy, right?

While predicting changes that will take place in the future, the number sequence is used to determine how the trend will flow. Fibonacci is a reliable Forex indicator; its outcomes are reliable. As a result, there are many large firms and banks use this to follow the market fluctuations or movements. You can definitely include Fibonacci charts in your short list of best Forex indicators.

The ratio of any number to one of the highest number is 0.618. For instance, 8/13 = 0.618. If the ratio between alternate numbers is measured, the result would be 0.382. For instance, 1/3= 0.382.

You can trade by using these numbers and you have the chance to make a profit. You can expect fairly accurate results by using this method, although not 100%. Using Fibonacci charts for Forex trading works on any time frame, from minutes to days, weeks, months, and years. The sames goes for Candlestick charts.

There are a lot more indicators, but these are on the top of my list of best Forex indicators.

Trade Forex Without Indicators

If you are planning to do forex trading, there are many ways to go about doing this. Where most people fail is that they being trading with lots of indicators. Their charts are filled with them, and traders are just hoping for the best. If you are one of those traders who want to think outside the box and trade forex without indicators, then I want to applaud you.

If you want to do this, then you are going to have to understand price action. Price action is the backbone of technical analysis.

Begin by opening up your forex charting platform, pull up your favorite currency pair, then choose a bar or candlestick chart. I implore you to fight that urge to put indicators on your chart. This can be difficult if you have been trained to think that you HAVE TO use them.

After this, come the tricky part. You have to just simply watch the price. (Remember, we are thinking outside the box). Focus on when the market is at its most explosive. If you do this right, there is something that should really stick out: After these kind of volatile moves, the market will retrace back to a common support and resistance area.

If you don't see it right away, don't worry. Price action is just something that takes some getting used to. The more you try it out, the clearer it will look to you. Remember that Rome wasn't built in a day. You've got a long run ahead of you.

The Pros and Cons of Trading Forex Momentum Indicators

Lets get straight to it, the markets are open and there's work to be done! Technical indicators can be grossly divided into two categories, the oscillators and the forex momentum indicators. The biggest difference? Oscillators are leading indicators, whilst forex momentum indicators lag. A little like the hare and the tortoise. And with them, come very similar problems!

This article will focus on Forex Momentum indicators, the pro's and the con's and how you can overcome the problems associated with lagging, leading indicators!

Lets Start with Forex Momentum

Forex momentum is the rate of change in price and are based on the trendlines on your price chart. Is is an indicator of volume in the forex market and whether the currency is overbought or oversold. High momentum indicates overbuying and low momentum indicates the opposite, overselling.

Forex momentum can be used to indicated a buying or selling opportunity. If momentum is low, only to rapidly shoot back up towards the zero line you have a buy signal. And the opposite applies for a sell signal.

The Pros & Cons of a Lagging Indicator

One of the best descriptions of a lagging indicators I've come across compared them to computer virus software. A leading indicator warns that you are about to download has a computer virus. A lagging indicator tells you after you've got the virus. I'll leave it up to you which one you want!

Why bother with lagging indicators then? Leading indicators are subject to fakeouts. You are essentially taking an educated decision on on the market is going to move so it is important to factor into your money management system that relying on leading indicators can be risky.

Forex momentum on the other hand puts you in a position where you already have evidence of the way the market is moving (ie. looking at the trend) so you are less likely to suffer a fakeout.

Missing out on Money

The most frustrating aspect of working with lagging indicators is both the late entry (and exit) on your trades. Since you miss the start of the trend (you are waiting for you indicators to let you know) you miss out on those early profits. That doesn't sound too bad does it? Actually it is bad as the biggest profits are generally made at the beginning of a trend! Ouch!

Best Forex Indicator

Joury ea