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This is just for illustrative purposes only! Moving on, here are the results of our backtest:. The data showed that over the past 5-years, the indicator that performed the best on its own was the Ichimoku Kinko Hyo indicator. Surprisingly, the rest of the technical indicators were a lot less profitable, with the Stochastic indicator showing a return of negative However, this does not mean that the Ichimoku Kinko Hyo indicator is the best or that technical indicators as a whole are useless.

Think of all those martial arts movies you watched growing up. The Rock used a combination of moves to get the job done. Forex trading is similar. It is an art and as traders, we need to learn how to use and combine the tools at hand in order to come up with a system that works for us. As you see, a couple of times the ADX moves above In that exact moment, the strength of the bullish trend increases.

Since the ADX gives no information about the trend direction, it is up to us to decide where the trend is going. In this case, and usually in most cases, a quick glance at the chart, will make this crystal clear. Bollinger Bands. Bollinger Bands are a technical indicator based on price volatility. It consists of an upper and a lower band, and a Simple Moving Average in the middle. The upper and the lower bands are used as support and resistance levels and the SMA is often used as a position trigger. When the two bands are closer to each other, this means the currency pair is in a low volatility environment.

When the bands start expanding, this means the Forex pair has experienced increased momentum and price volatility. Take a look at the chart below:. The period is Jan 12 — Feb 11, We also put a Volume Indicator at the bottom of the chart, so you would be able to see why the Bollinger Bands lines expand. As you see, from January 12 until February 3, the Bollinger Bands lines have been pretty close to each other. We placed a line on the Volume Indicator, which shows the average volumes of the Swissy until February 3. On February 3, Bollinger Bands begin to expand, with unusually high Swissy volumes.

At the same time, the price drops. The MACD is an indicator that takes two moving averages of two moving averages of the price, then it smoothes them by two other moving averages. In addition to the two moving averages of the indicator, there is also a histogram, which displays the difference distance between the two moving averages. As you probably guess, there is a relatively high amount of lag behind the MACD.

Technical Indicators Distract From What's Important

Nevertheless, this is one of the most widely used Forex technical indicators. The basic MACD signals are:. Now let me show you the MACD indicator in action:. The period is Apr 7 — Oct 23, At the bottom of the chart you see the MACD with its histogram.

The Benefits of a Simple Strategy

Visually it places little dots on the chart above and below the candles. When candles are closing upwards, the dots are below the candles. When candles start closing downwards, the dots switch above the candles. In comparison to some other indicators, Parabolic SAR is equally effective for entry and exit signals, but many traders use it mainly for its exit signal. One Parabolic SAR rule that can be used is, buy when there are three dots below the candles and sell when there are three dots above the candles.

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The image below will show you how exactly the Parabolic SAR works:. The period is Dec 30, — Feb 2, The black dots represent the Parabolic SAR indicator. Download the short printable PDF version summarizing the key points of this lesson….

Best Technical Trading Indicators for Forex Trading

Only sell that market once the indicator crosses below the 80 line and is confirmed by a leading indicator. We will gauge its reliability by considering these 20 trades. The higher the accuracy the more reliable it is.

Forex: Top 2 Best Indicators / How to use them correctly

Biggest advantage : Used with price action and support and resistance levels, it can help a trader catch a good trade. Biggest disadvantage : It is a lagging indicator meaning that it shoots its signal after the move has happened. A Bollinger band is a very popular indicator that is often used by traders to trade. It is a momentum indicator which can be used to check if the market is trending or ranging. Bollinger bands comprise three lines- a simple moving average often called the middle band and two lines outer bands plotting two standard deviations positive and negatively away from the middle band.

Bollinger bands are lagging indicators because they give their signal long after the move has happened. As mentioned, there are many ways of trading using the Bollinger bands. Personally, I trade it as follows:. Buy if a full candle completes above the simple moving average middle band with stop loss below the high of the previous candle. Sell if a full candle completes below the simple moving average middle band with stop loss above the high of the previous candle.

Note: Bollinger bands work best in trending markets but can be used with a leading indicator to trend both ranging and trending markets. Biggest Advantage: Can be used with leading indicators to catch nice moves in the market. Biggest disadvantage: It is a lagging indicator and thus, it should not be traded alone.

The Ichimoku cloud also known as the Ichimoku Kinko Hyo indicator can be used to determine support and resistance, trend direction and momentum for an asset.

Technical Indicators

Complicated yes? No need to scratch your head doing all these. Your charting platform will do it for you. Signals and Strategies generated. Based on the results above, you can clearly see that this indicator gives more losing trades than winning trades. Biggest advantage: Ichimoku cloud is an all-in-one technical indicator meaning that it can be used alone to make trading decisions. Biggest disadvantage: Ichimoku Cloud gives its signal long after the real move has happened.

MACD is a powerful indicator that is often used by traders to check for price momentum, price trend and direction. This awesome indicator has three components, two moving averages signal line and MACD line and a histogram. This calculation uses the closing prices for the two EMAs. Then a 9-day EMA is added to give the signal line. MACD is a lagging indicator meaning that it gives its signals long after the real move has already happened.

The Best Forex Indicators For Currency Traders

The various components of this versatile indicator can be used to gauge price momentum, price trend and direction. There are many different MACD trading strategies. Let us look at an example of such strategies. Divergence happens when price action is doing the exact opposite of what the MACD is doing. For example, if price is forming lower lows and MACD is forming higher lows, this indicates the formation of a strong bullish signal and the opposite can be considered for a bearish signal.

MACD appears to be more reliable than the indicators that we have back tested before. Biggest advantage: It can be used either as a standalone indicator or be used with other leading and lagging indicators. Biggest disadvantage: MACD shares the disadvantage of being a lagging indicator with all the other lagging indicators. This means that it usually generates signals long after the real move has happened. This versatile indicator can be used to help you, the trader to identify a new trend or beware of extreme condition.

Initially, the CCI indicator was developed for use in trading commodities but today it can be used for trading equities, indices, currencies and other assets.