Forex Trading - The Best Forex Indicator

I don't believe in fancy indicators or indicators on other convoluted indicators. This is all made too complicated by forex traders.

At the same time, I think a lot of traders try to under simplify too reaction to all the over complication. I've heard of traders that don't use any indicators and just stare at price and take trades. Believe me, there are some who have the experience to do that. 99.99% chance that you're not one of them.

You do need a guide when staring at the hard right edge of the chart. I wish I could just tell you to use a simple moving average and just move on. Ha! That doesn't quite work. You need something a little more advanced than that.

However, the ultimate indicator does use moving averages. I'm talking about the MACD. I'm sure you know it. It charts at the bottom of your charts as a histogram. What it's telling you is the difference between two different moving averages. In other words if you were to chart a 5 period MA and a 15 period MA, then you would notice that at times the two lines are getting closer together. That's when the histogram would show just little spikes. Other times the MAs are moving further apart. When this happens, the MACD shows bigger spikes. So you can track the difference between two moving averages with this MACD.

Now, how the heck is that useful? It's useful because when a move in the market is running out of momentum, the longer moving average will catch up to the shorter moving average, even if the price is making new highs. When that happens, you get a divergence. The price just made a higher high, but the MACD made a lower high.

This doesn't mean the price will change direction every time, but it does mean that there is a better than 50% chance that the price will change direction. You can place your stop (mental stopless) at the top of the high and wait for a break downwards, enter on the down break and hold it for at least the size of your stop. Then get ready to exit on the sign of a turn around.

This is the simplest, best, easiest trade I am aware of. Most traders discount the power of MACD divergence. You don't have to be one of them.

Oh, I forgot to give you my best MACD settings. I use 5-15-1. Of course, you are free to use whatever you'd like, but that has worked the best for me.