Hundreds of Currency Trading Indicators, Which One to Use?

You probably have looked at your trading platform in the past or even recently and wondered which currency trading indicator or indicators are the best one(s) to use. It's not easy to decide because most traders do not understand how and why they were developed. And many of the indicators that were designed for a particular purpose, do a poor job of meeting that purpose.

How does a trader decide which indicator or indicators to use? First, using too many indicators is a recipe for disaster. One of the 26 Reasons Why People Fail In Forex, is the use of too many indicators. There is a plausible reason for this. The short answer is that the indicator that gives you the best percentage signal for a trade is the best indicator for you to use. So, if you have 3 indicators all telling you to trade and one has a 45% win percentage and the other two have less, then the 45% winning percentage is the one you should use. Adding up all 3 of your indicators does not give you an increased chance of winning. I explain this more completely in the book.

Second, which indicator is the best one to use? There are going to be many arguments regarding this. Many professional traders use some kind of momentum indicator or oscillator in their trading decisions. The best one in my opinion and in the opinion of many is RSI, the Relative Strength Index. However, as in most cases when it comes to indicators is that people are using the wrong information when it comes to reading what they say or mean.

For example, RSIs best use is not overbought and oversold readings. In fact, it can be easily proved that in most cases these reading are false. Nor is it the location of divergences simply because many traders today believe that divergences are signals for price to reverse when in fact they are signals that price is about to do the opposite.

The best use of RSI and momentum is a signal that is produced called a Reversal. I have written about Reversals here on this site and extensively in RSI Fundamentals: Beginning to Advanced (You can order this now and get a FREE copy of RSI Trading Examples Vol. 1 until January 2nd, 2011.)

If you learn about Reversals and where they occur you will be on your way to trading Forex in a successful way and the currency trading indicators question will no longer be an issue for you.

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Which Forex Currency Pairs Are the Best For Range Trading?

Have you ever noticed that one trading strategy may work absolutely beautifully with one currency pair, but it may fail miserably with another? That is because each currency pair has its own personality, special behaviors, and idiosyncrasies. And if you don't understand and pay attention to these differences, you will be leaving money on the table. So let's look at which currency pairs are the absolute best for range trading.

Every currency will range at one time or another. Especially after large moves, traders need to take a break and step away, and so the currency tends to range back and forth. But some currency pairs are absolute goldmines for trading ranges.

Let's start here - you know that interest rates are a huge factor (in fact, maybe the single most important factor) when it comes to the foreign exchange. You will get the best range trading opportunities on currency pairs where each country's interest rate is similar.

So that means that currency pairs like the EUR/CHF and the CHF/JPY are going to be good excellent range trading pairs. That is because their interest rates are very similar, so money is not flowing strongly into either currency in comparison to another. Bring up a chart of the either of these currencies and you will see that they do not move around that much.

On the other hand, currency pairs whose countries have large interest rate differentials between each other (i.e. AUD/JPY and AUD/CHF) will tend to range much less.

Some quick basics on range trading:

1) You don't have to wait for the price to actually hit the top and bottom of the range to enter a trade. Divide the range into 4 even sections, wait for the price to reach the upper or lower quartile, and then look for indications the market is turning.

2) Use Bollinger bands, the ADX indicator, or the Average True Range indicator to tell you then the market may turn.

3) Always put your stop loss outside of the range - never inside.

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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.

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Forex Trading - Are Indicators a Waste of Time and Which Ones Give You a True Trading Edge?

Forex trading doesn't have to be hard, but this doesn't mean that it is easy. It is not uncommon for traders, especially new ones, to feel or experience some kind of information overload when trading. With charts displaying a seemingly meaningless zigzag of price moving up and down, it is no wonder that new traders are the ones who suffer the most from information overload. To combat this many traders turn to indicators, hoping that they will in some way alleviate the overload of information and simplify the process of trading. What is interesting is that many seasoned traders actually shy away from or at the very least use only the absolute minimum number of indicators in their trading. Does this mean that indicators are useless? If you are just starting out, how should you approach the problem of information overload and whether or not to use indicators in your trading? Are they a complete waste of time or do they actually serve some purpose?

Indicators are not a waste of time, but they are not the Holy Grail that many traders wish them to be. I would personally recommend that new traders play with as many indicators as they can until they feel that they have found a select few that work best with their style of trading. Many seasoned traders consider indicators a waste of time and often tell beginner traders not to waste their time on them. This is easy for them to say and do because experienced traders have years of experience which has allowed them to come to terms with information overload and deal with it on a mental level without having to use indicators. Put simply, they rarely, if at all, need indicators because they now "see" and "understand" more about the workings of the forex and currency markets thanks to the years of experience that they have. It is for this reason that I strongly suggest new traders to use indicators and to do so until they either find themselves not needing them or only using one or two at most at a time on their charts.

So what indicator should you use? The answer to this really depends on your style of trading, but the most powerful are momentum based indicators. These indicators plot the momentum of price and this is something that even experienced traders use in their trading (albeit many manage to do this without the need for momentum indicators and instead often say they can "feel" how price is moving). Momentum indicators are useful because they measure the rate of change in price. Put simply, if price continues to change at a steady rate or picks up speed, then momentum is considered to be high and price will be strongly trending up or down in the market. As price loses speed and the change in price drops, momentum drops. When this happens, it is possible that price is approaching a turning point in the market. These turning points offer an opportune time for you to get into the market, or close out any open trades locking in profit.

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Best Forex Indicators - Which Timeframe Should You Trade?

Best forex indicators - you can trade the foreign exchange using many different timeframes. Some of the most popular ones are the 1 minute, 5 minute, 15 minute, 1 hour, 4 hour, 1 day, 1 week, and 1 month charts. So many choices can really confuse the novice trader, so in this article, we will talk about which one is right for you.

The one you choose will largely depend on your personality and trading goals. If you want to be in and out of trades quickly, then you might use a 1 or 5 minute chart. If you want more time to analyze your trades, then you will use a 1 hour or higher.

Also your experience will be a factor when choosing. Generally the smaller the time sample, the harder it is to trade. For one reason, you have to make quick decisions on quick charts, and quick decisions for beginners usually end in losses. Secondly, patterns that develop on smaller charts are less reliable because they reflect only a small sample of time. Chart patterns using higher time samples are generally more reliable.

One more point - you will probably use a combination of timeframes when you trade. These different market perspectives will be one of the best forex indicators you ever use. You might look for a good trade on a larger timeframe and then drop down to a smaller one to identify the exact entry and exit points. But it is best to choose 1 and use it the majority of the time.

So which timeframe should you choose?

If you are a beginner, you should use the 15 minute or higher. Anything less is too quick. You first need to recognize patterns, learn the market, and become very familiar with your trading station before you focus on trading often.

Most people suggest that novices start on the 1 hour chart. You won't get a lot of trade opportunities on the 1 hour, but you don't have to take a lot of trades to make money. I repeat - you do not have to take a lot of trades to make money. Many traders get the feeling that if they are not actively trading then they are wasting their time. Usually traders that over-trade waste more than just their time - they waste their money.

So try different timeframes and see which one works best for you. The right one for you will be one of the best forex indicators you can have.

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Which Trading Strategies Make For the Best Forex Robots?

Each trader will have a different approach when it comes to trading the Forex markets. The strategy that suits one will not be suited to another. Some traders prefer the high impact intraday trading approach, where markets are constantly analyzed and short term trading positions are taken. Others will prefer to take a longer term view and will take more time to strategically position their entries in line with key fundamental data.

Forex robots can make use of any one of these styles of trading so it pays to have an understanding of what is behind them prior to purchasing and running a robot on your account.

While automated Forex trading systems can trade a range of strategies, there is no firm evidence to suggest one style of trading is likely to yield you any greater profits than another. Provided that they execute the strategy correctly and with a good risk reward ratio, then there is every reason that the best Forex robots should perform.

Knowing the strategy behind the system is however beneficial to the success of your trading. While many system vendors are not keen to reveal the exact methods, you can generally get a feel for how the robot trades simply by watching ifs movements. Make sure you are happy with the strategy employed and that it fits in with both your objectives and temperament.

Some Forex robots function better in calmer markets while others feed of the volatility during busier times. Knowing the strategy of your system and how it should perform in different markets is a step you can take to improve the trading results you achieve.

If for example, you know that the strategy used performs more accurately when the markets are calm, then you can set the robot to avoid trading around key event risk. All you need to do is access an economic calendar and note the upcoming news events which you want to avoid. These may include Central Bank Rate decisions and Non Farm Payrolls for example. Then simply adjust the trading parameters or even manually stop the system for trading around the release of these fundamental events.

On the flip side systems that make use of technical indicators will often perform better in more volatile markets. Technical indicators can often be adjusted with these strategies in order to synchronize the strategy to the prevailing market conditions. Often standard droids can be turned into some of the best Forex robots simply by making a few simple tweaks.

In knowing the strategy behind the system you will be able to assist in its performance by applying your knowledge to its trading. This will enable you to find the best Forex robots for your trading which result in you having the ability to increase the profits that you generate from your trading.

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Forex Trading - Are Indicators a Waste of Time and Which Ones Give You a True Trading Edge?

Forex trading doesn't have to be hard, but this doesn't mean that it is easy. It is not uncommon for traders, especially new ones, to feel or experience some kind of information overload when trading. With charts displaying a seemingly meaningless zigzag of price moving up and down, it is no wonder that new traders are the ones who suffer the most from information overload. To combat this many traders turn to indicators, hoping that they will in some way alleviate the overload of information and simplify the process of trading. What is interesting is that many seasoned traders actually shy away from or at the very least use only the absolute minimum number of indicators in their trading. Does this mean that indicators are useless? If you are just starting out, how should you approach the problem of information overload and whether or not to use indicators in your trading? Are they a complete waste of time or do they actually serve some purpose?

Indicators are not a waste of time, but they are not the Holy Grail that many traders wish them to be. I would personally recommend that new traders play with as many indicators as they can until they feel that they have found a select few that work best with their style of trading. Many seasoned traders consider indicators a waste of time and often tell beginner traders not to waste their time on them. This is easy for them to say and do because experienced traders have years of experience which has allowed them to come to terms with information overload and deal with it on a mental level without having to use indicators. Put simply, they rarely, if at all, need indicators because they now "see" and "understand" more about the workings of the forex and currency markets thanks to the years of experience that they have. It is for this reason that I strongly suggest new traders to use indicators and to do so until they either find themselves not needing them or only using one or two at most at a time on their charts.

So what indicator should you use? The answer to this really depends on your style of trading, but the most powerful are momentum based indicators. These indicators plot the momentum of price and this is something that even experienced traders use in their trading (albeit many manage to do this without the need for momentum indicators and instead often say they can "feel" how price is moving). Momentum indicators are useful because they measure the rate of change in price. Put simply, if price continues to change at a steady rate or picks up speed, then momentum is considered to be high and price will be strongly trending up or down in the market. As price loses speed and the change in price drops, momentum drops. When this happens, it is possible that price is approaching a turning point in the market. These turning points offer an opportune time for you to get into the market, or close out any open trades locking in profit.

Read more...

Which Forex Currency Pairs Are the Best For Range Trading?

Have you ever noticed that one trading strategy may work absolutely beautifully with one currency pair, but it may fail miserably with another? That is because each currency pair has its own personality, special behaviors, and idiosyncrasies. And if you don't understand and pay attention to these differences, you will be leaving money on the table. So let's look at which currency pairs are the absolute best for range trading.

Every currency will range at one time or another. Especially after large moves, traders need to take a break and step away, and so the currency tends to range back and forth. But some currency pairs are absolute goldmines for trading ranges.

Let's start here - you know that interest rates are a huge factor (in fact, maybe the single most important factor) when it comes to the foreign exchange. You will get the best range trading opportunities on currency pairs where each country's interest rate is similar.

So that means that currency pairs like the EUR/CHF and the CHF/JPY are going to be good excellent range trading pairs. That is because their interest rates are very similar, so money is not flowing strongly into either currency in comparison to another. Bring up a chart of the either of these currencies and you will see that they do not move around that much.

On the other hand, currency pairs whose countries have large interest rate differentials between each other (i.e. AUD/JPY and AUD/CHF) will tend to range much less.

Some quick basics on range trading:

1) You don't have to wait for the price to actually hit the top and bottom of the range to enter a trade. Divide the range into 4 even sections, wait for the price to reach the upper or lower quartile, and then look for indications the market is turning.

2) Use Bollinger bands, the ADX indicator, or the Average True Range indicator to tell you then the market may turn.

3) Always put your stop loss outside of the range - never inside.

Read more...

Which Forex Currency Pairs Are the Best For Range Trading?

Have you ever noticed that one trading strategy may work absolutely beautifully with one currency pair, but it may fail miserably with another? That is because each currency pair has its own personality, special behaviors, and idiosyncrasies. And if you don't understand and pay attention to these differences, you will be leaving money on the table. So let's look at which currency pairs are the absolute best for range trading.

Every currency will range at one time or another. Especially after large moves, traders need to take a break and step away, and so the currency tends to range back and forth. But some currency pairs are absolute goldmines for trading ranges.

Let's start here - you know that interest rates are a huge factor (in fact, maybe the single most important factor) when it comes to the foreign exchange. You will get the best range trading opportunities on currency pairs where each country's interest rate is similar.

So that means that currency pairs like the EUR/CHF and the CHF/JPY are going to be good excellent range trading pairs. That is because their interest rates are very similar, so money is not flowing strongly into either currency in comparison to another. Bring up a chart of the either of these currencies and you will see that they do not move around that much.

On the other hand, currency pairs whose countries have large interest rate differentials between each other (i.e. AUD/JPY and AUD/CHF) will tend to range much less.

Some quick basics on range trading:

1) You don't have to wait for the price to actually hit the top and bottom of the range to enter a trade. Divide the range into 4 even sections, wait for the price to reach the upper or lower quartile, and then look for indications the market is turning.

2) Use Bollinger bands, the ADX indicator, or the Average True Range indicator to tell you then the market may turn.

3) Always put your stop loss outside of the range - never inside.

Read more...