Do you struggle to identify the direction of a trade? One of the most common questions I get is which are the most powerful indicators to use when trading Forex? Is it Stochastic, RSI, Bollinger Bands? The list of indicators is long and there are thousands of free and premium indicators available. We will cover the indicators we like the most in today’s article.
First of all, we as traders need to take a deep look at the charts and backtest the appropriate information to make sure we become consistently profitable. 98% will not be willing to the work that is needed to become successful, for them to achieve what they want. Are you willing to make those sacrifices? How much work are you willing to do to separate yourself from the 98%?
Indicators must be used the right way
Indicators are widely used in the financial markets for good reasons. They can help us make good trading decisions when used correctly. Unfortunately, most new traders think that indicators tell them always exactly when to enter and leave a trade setup… The truth is that there is no indicator you can believe 100% in at all times. Actually, these indicators can either become your worst enemy or your best friend.
The indicators can be very confusing for beginners, but they may also help them to make profits in the markets. A lot of the most popular indicators come already precoded in the charting platforms MetaTrader 4 and MetaTrader 5. They make life a bit easier for us traders as you can just select an indicator on the menu, and that’s actually everything you need to do. Although it seems very easy, you will definitely not be a master trader overnight just by finding a good indicator to use. No indicator shows you anything more than other indicators of what price is doing.
Don’t get confused. I will focus on some indicators I use when I scalp the market and just want to make some quick trades. I like to get in today and out as fast as possible again.
What is Moving Average and how to use it?
The first indicator I want to talk about is named Moving Average (MA). MA is just the average of a certain period of time. We can say it is a technique that smooths price history by averaging daily prices over a period of time. When do I use it? For finding the best entry points, to define a great start time for my trade setup.
Why scalp traders like me like to use MA is that we put 2 moving averages together. There are 3 colors and each time one of the colors cross each other, that is an indication that short term price action is now starting to take over the long term price action. Let’s say that the trend line is going down and we see the colored lines are getting closer to each other. Once they are crossing, then we are ready to take action and buy immediately. We just jump in when we get a great opportunity. Also, when it rises high and get a cross of a different color, it’s an indicator that now it’s time to sell. Moving Average is awesome to use for entry techniques, but they can lag a little bit, which you will see if you have several timeframes open at the same time. That’s why it’s great to combine this indicator with another one, the Parabolic SAR (Stop and Reverse) which I will cover next.
What is Parabolic SAR and how to use it?
The parabolic SAR is a technical indicator used to determine the price direction of an asset, as well as draw attention to when the price direction is changing. When do I use it? For defining the end of my trade. What I like to do is to combine the entry point from Moving Average and stop points with Parabolic SAR. That one tracks along with the price much closer, and it uses pivot points. When the price is ready to break towards the pivot point, the Parabolic SAR will cut through price aggressively. Combining these 2 indicators will give you great entry points and stop targets.
Quick trades will be done easier with these great indicators
These are just 2 examples of amazing indicators that scalping traders use. There are many other indicators, and I have listed my 7 most powerful and effective indicators in the Forex and Profits blog.