Forex Trading – Learning to Use Basic Indicators
Most people who become interested in forex trading will inevitably start to develop an interest in technical analysis macd indicator in due course. This is because by applying certain technical indicators to your basic chart, you will find that it is a lot easier to find high probability set-ups. So what indicators should you start off with?
Well many people will argue that the best indicator you can use is the actual price itself. There is a lot to be said for this argument because you can learn an awful lot about how currency pairs actually move by simply watching the price action on your chart (with no other indicators).
If you are observant you will notice that the same patterns occur over and over again. Furthermore if you add pivot points to your charts, you will see that these lines on the chart often act as strong areas of support and resistance. So you could probably generate some decent profits just by using price action in conjunction with pivot points (if you are a short-term trader).
However I would suggest that you add one or two additional indicators into the mix. One of the favourites amongst traders is the MACD indicator. This indicator is useful because when the MACD line crosses through the signal line it often indicates that a new trend is underway, plus when you get divergence on this indicator, it is often a sign that the current trend is running out of momentum.
Other useful indicators include the RSI and Stochastics indicators. These two are very similar in that they both tell you when the price is in overbought and oversold territory (and therefore likely to reverse). The market is said to be overbought when it is above 70 (or 80 on the Stochastic indicator) and oversold when it is below 30 (or 20 on the Stochastic indicator).
Finally you may also like to use the ADX indicator because this will tell you the best time to trade a particular currency pair. For instance when the ADX is below 20 it is basically telling you that the pair is currently in a sideways trend, and should therefore be left alone. So you only want to be trading a particular pair when the ADX is currently above 20, and ideally above the 25 level.