Tuesday, March 31, 2015

What are the most used technical indicators in forex trading?

Through the entire experience of trading in the currency market - i have learned quite a substantial amount of knowledge of what the other traders used as a guide to open buy or sell position in forex. Thanks to forums, investopedia, blogs, etc that have provided all the knowledge through users experience.

Why it is important to know what kind of indicators people used the most is simply because in trading you want to be with the major crowds with the most money. Although this is not 100% but seriously if you are using something else other than what the most traders are using then you are going to be among the losers that never learnt. So basically by knowing what technical indicators the people used means you are making an effort to follow the majority. Why the majority? because the majority wins as they have more volume of money collectively as opposed to minority. So why on earth should we follow the losers.

In basic principle most technical indicators are primarily built based on price actions, historical price, and also moving average. Price actions and historical price is actually almost the same thing although there is a slight differences between them. For example price action is depending current price movement based on the predictable graph patterns whereas the historical price is based on historical graph movement where the price fluctuates. Moving average are the basic principle of most of the indicators such as MACD, Stochastic, RSI, Bollinger Bands, Parabolic SAR, Average Directional Movement Index (ADX), etc.

Based on what i have learnt this is the list of indicators that traders mostly used to trade in the forex market:

1. Price Action (Support / Resistance) or Fibonacci
2. Historical Price (Graph Patterns)
3. Trend Line
4. Moving Average Convergence Divergence
5. Stochastic

Moving average have many variation but the most easiest to use and effective are the MACD and Stochastic. Other indicators such as Momentum, Simple Moving Average, Bollinger Bands, etc are more difficult and less effective. The reasons is simplicity and most people prefer to be simple because being complicated is not going to do any better when trading as you are predicting the unpredictable. Therefore better to be simple.

Learning complicated indicators aren't going to help very much in Forex trading but being able to use combination of simple indicators that compliment one another in trading decision making is much more valuable. For example MACD and Stochastic combination is more effective compare to use one of it.

Apart from that never ignore the fundamental indicators when trading because the volatility of the market is depending on it especially the unpredictable Non-Farm Payroll data where technical indicators doesn't apply. For those who believe in 100% technical indicators - they are simply dead wrong. Watch out every NON-Farm Payroll and you will understand what it means as there are non of the technical indicators can predict the movement. Therefore always look at the economic calender i.e. Forex Factory to check what economic data are release on everyday of trading. Usually economic data release coincide with the volatile movement of the market and smart traders usually use it on their advantage together with the technical indicators.

Despite all of this we cannot predict the traders mind during their time of trading, they could used any of those indicators and their timing to execute are unpredictable. Being a perfectionist is not of any good in forex and many have fails that we didn't really realized. Because everyone would be rich today if Forex is easy - even the experts from the banking industry failed without we knowing it. You may never know most people might have failed!!

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