Forex Trading Strategies - Technical Indicators
There are innumerable technical indicators available to today's forex trader. You can find all sorts of technical indicators, from the simple and intuitive to the incredibly complex and completely worthless. It seems more are being produced daily with the improvement in today's trading software and technology such as MetaTrader 4.
There's no requirement for learning about all of the technical indicators available and discussing each of their nuances. In fact, there's more value in learning how to use a few indicators very well. Along these lines, you want to focus on learning a couple of key concepts relating to technical indicators and applying these concepts to determining good entry points and exit points, and even determining the size of a stop loss. You can accomplish as much by focusing on four technical indicators: the Average True Range (ATR), Moving Averages, Stochastics, and Moving Average Convergence Divergence (MACD).
The concepts that you'll learn when applying Moving Averages, Stochastics, and the MACD are applicable to most other technical indicators. Indeed, the application that you'll learn with Moving Averages, Stochastics, and the MACD is transferable to most other indicators. Focus on the concepts rather than the indicators themselves. Don't worry too much about the parameters at this point.
The ATR is much different than the Stochastics and MACD because of the way it's calculated. The ATR is rather unique in this regard.
Technical indicators are powerful tools that can help you to organize and measure movements in currency pairs. A lot of traders, especially beginners, are led to believe that technical indicators are some sort of secret that will take them down the path to riches. While technical indicators can be used to determine objective entry points, they are far from the holy grail of forex trading.
The most common application of technical indicators is determining entry points. But you can use technical indicators in different, unique ways. You can use these tools to exit both profitable and losing trades.
The biggest mistake that new forex traders make when applying technical indicators is that they rely too heavily on historical observations to make decisions in the present, which is where we all trade. Additionally, a lot of new traders get a little bit of experience using technical indicators and start to pile one indicator one top of another. This is known as indicator piling and is usually a very bad practice. You've probably seen charts on a blog or elsewhere online where a trader has applied four, five, six, or even more technical indicators all to the same chart. Indicator piling only ends with frustration and confusion as the signals from the different indicators conflict with one another.
A solution to these problems is to use just a few of the basic indicators, such as Stochastics, moving averages, MACD, and ATR. But even with these four, you'll probably only limit the application to two or three.
Another solution is to rely on analysis that is relevant in real time and doesn't rely too heavily on historical observations. There are only a few forms of such analysis. One is point and figure charting. It's a way to assess a currency pair in real time and to conclude whether the pair should be bought, sold, or avoided altogether.
About Author
Eric is a former forex industry indsider. He's been trading stocks, options, bonds, futures, and forex for over a decade. He first learned about point and figure charts in 2000 and has since become an expert in the method. He now applies point and figure charts to his forex trading. You can learn more about the FXPNF system by visiting: http://www.fxpnf.com
Source: ArticleTrader.com
