subject: How To Combine Technical Indicators To Trade Forex Successfully [print this page] How To Combine Technical Indicators To Trade Forex Successfully
A lot of forex traders use technical indicators to help them make trading decisions and on the whole they are very effective. For example, a technical indicator may give forecasts on the direction at which a particular currency pair may head next. They can also help you to determine where to enter or exit the trades. If these indicators are used correctly, they can make you earn a lot of money.
The fact remains that technical indicators are effective tools to use in making trading decisions. However, only very few traders know how to use these tools profitably. A lot of traders make some mistakes when using these indicators. I would analyse some of the major issues relating to the use of technical indicators below:
When making trading decisions, the fewer the indicators you use the easier it is for you to be able to decide where the market is going. A lot of traders make the mistake of using so many indicators at the same time. This is as a result of the believe that the more indicators they use, the better their trading signals would be. Unfortunately, this usually lead to confusion since some of them might give you conflicting signals.
Another aspect of the use of forex trading technical indicators is in the right combination of these indicators. There are different types of technical indicators; some are trending indicators telling you when a trend is beginning while others tell you when the trend is coming to an end. Yet others are good at telling you when the trend is about to reverse. Some indicate when to enter a trade while others give you signal as to when to exit a trade. Examples of such indicators are moving averages, Bollinger bands, Stochastic, Relative Strength Index, etc. It is one thing to use technical indicators, yet it is another thing to use the right combination of technical indicators effectively. An understanding of all these is necessary for profitability.
An important aspect to note when choosing which indicators to use is that you do not necessarily have to use the default settings. Many forex traders may think that by simply downloading the indicators and then mechanically applying them into their trading will ensure the profitability, which is not usually the case. Very often you will find that you can increase the effectiveness of a particular indicator by adjusting the settings to suit your own particular trading method. A lot of default settings are regarded as the most widely used settings and will therefore satisfy most traders, but you can often improve your success rate by experimenting and back-testing using different settings.
Another point to consider when day trading with technical indicators is the use of time frames. You can use technical indicators across any time frame, but in my experience some of them will work better when you adjust the time frame to fit your trading style.
Finally, you must understand that the right technical tools will get you into good trades and keep you out of bad ones. Use these powerful indicators and tools to cross-verify the message of your chart pattern and also spot profitable trades.
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