Indicators in Forex Trading: Selection, Configuration and Usage
By Space Coast Daily // August 5, 2023
Until recently, math knowledge was a more significant factor of success in trading than education in finance, economics, or business. However, thanks to the widespread use of Forex predictive indicators, mathematics has ceased to be a barrier to new traders’ entry into the market.
It is because indicators are synthesized knowledge that can be easily used if you master the basic skills of choosing and applying the most effective of them.
Understanding Forex Indicators
Indicators are necessary for traders to predict further price movements for the currency pairs they trade. They suggest when and what type of order to place to maximize profits.
There are a lot of indicators offered by trading platforms since each indicator has its own approach to predicting price behavior in the market. It takes into account certain statistical data, such as current price, trading volume, etc.
Moreover, technical analysis is constantly evolving and offers new approaches to forecasting and, hence, new indicators. In particular, the difference between MetaTrader4 and MetaTrader5 is manifested in the number of built-in indicators offered to traders. In this comparison, the MetaTrader5 platform is much richer in indicators than its predecessor.
Selecting the Right Indicators
Choosing the right indicators to work with is the key to successful Forex trading. Since there are hundreds of Forex chart indicators, professionals advise working with no more than 2 or 3 of them. If you add more to your trading chart, there is a high probability that you will get confused. But decisions on opening or closing orders need to be made very quickly, especially if you are scalping.
In general, there are several groups of indicators, and some traders prefer to combine them, while others work with only one type:
Trend indicators Forex that should suggest the further direction of price movement;
Oscillators or impulse indicators that predict a trend reversal;
Volume indicators that show how the activity of traders changes;
Volatility indicators that evaluate the speed of price movement.
Configuring Indicators for Trading
In addition to the ready-made indicators offered by trading platforms, you can create your own if you think they will work better. To succeed in this, you need to:
Select those components from the statistical tables that you want to take into account.
Determine the rules that govern the relationship between these indicators.
Test them on historical data.
Start using self-composed indicators preferably with a Demo account or Micro account.
Combining Indicators for Confirmation
When working with indicators, a trader must filter out noise and discard false signals. For this, a Forex confirmation indicator is used, which either shows the same results or demonstrates different ones. If there is a discrepancy, an additional analysis of the market situation is required and, possibly, the supplement of a third indicator. However, these indicators should be not duplicative but rather complementary. In particular, you can use the following successful combinations:
Trend indicators and oscillators;
Volatility and momentum indicators;
Support and resistance levels and oscillators, etc.
It is also advisable to conduct a Multiple Time Frame Analysis, which uses different time frames to better understand the direction of price movement.
Using Indicators in Different Market Conditions
Market circumstances are constantly transforming under the influence of many factors. Sometimes, the price of a currency is very volatile, which allows you to make big profits if you predict its fluctuations correctly. And sometimes, on the contrary, it practically does not move, changing within narrow limits or even freezing. Therefore, for various market conditions — volatile or flat markets — different trading strategies and indicators are used.
On the ForexStore online platform, you can find trading robots that are ideal for any market situation. This will allow you not to depend on the changes in the global currency market but to make a profit in any conditions.
To be a profitable trader, it is not enough to rely only on intuition or a cursory examination of price charts. Losses from such a superficial approach very quickly force traders to resort to various indicators, which allow for predicting price movements, trend reversals, etc. with a high degree of reliability.
Trading platforms offer a very wide range of ready-made proven indicators. However, you can risk creating your own and rely on them. And do not forget that when market conditions alter, it is better to select those indicators that have proven themselves well in the newly changed conditions.