Tuesday, 6 March 2012

Forex Trading Style- 7 Essential Indicators You Need

When developing your own forex trading style, there is a danger in becoming fascinated with indicators. The newer trader experiments with one, finds it doesn't work so well, then switches to another, then another, etc.
The list below highlights 7 key indicators that can be woven into your forex trading style. You may not need to go any further than this. Stick with the 7, practice them, get to know them inside out, and get the satisfaction of developing your own successful forex trading style.
#1: Candlesticks
Watch for a hammer, doji, head and shoulders pattern, 1-2-3 formation, double top or bottom.
#2: Trendlines
Draw common sense trendlines across the highs in a downtrend or lows in an uptrend. Watch for price to break the trendline and come back and test it.
#3: MACD
Watch for a difference between the highs and lows of MACD and price. When there is divergence watch closely for a good entry point once price has shifted in the direction of the divergence.
#4: 200 EMA
This indicator is an all time favorite for traders across the board. On higher time frames (1 hour, 4 hour, daily) take note whether price is above or below the 200 EMA to give you the sense of price direction.
#5: Pivot points
Take note of previous support and resistance lines as price will come back to retest these levels time and time again.
#6: Fibonacci
Learn how to use this tool well and take particular note of the 50 and 62 retracement levels, especially when they coincide with trendlines or previous support/resistance.
#7 Price Itself
Let price prove to you where it wants to go by setting entry orders rather than market orders when entering a trade. By setting an entry order, price has to reach the target you specify before pulling you into the trade.
Using Technical Indicators
It is important to acknowledge the probability that no indicator on its own is a good enough reason for entering or exiting a trade.
Your individual Forex trading style will evolve in time as you become familiar with the key indicators and probably rely heavily on just 2 or 3 out of the 7. However, it is crucial to get a combination factor when considering a trade. Ask questions such as:
  • While one indicator may show a clear signal, how do the other indicators line up?
  • Is that one signal running against the general conclusion drawn from the other indicators?
This is where your skill as a trader comes in as you assess the clues the indicators give and make a decision based on your perception and experience in the market.
Only time and practice can give you that. Once you are familiar with the top 7 indicators, spend most of your time and energy on developing the emotional and mental disciplines necessary for successful trading. This will eventually make up the most important part of your Forex trading style.
Click here to see how indicator #3, MACD, can help you avoid much anxiety:
http://www.vitalstop.com/Forex/macd.html
Click here to learn how to use indicator #4, the 200 EMA, in a simple yet powerful way:
http://www.vitalstop.com/Forex/Advisor/200EMA-forex-strategy.htm
For the best free economic calendars plus a free pivot point calculator and Fibonacci calculator click here:
http://www.vitalstop.com/Forex/tools.html

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