However, most trading opportunities can be easily identified with just one of four chart indicators. To find the best trading ideas and market forecasts from DailyFX, click here. This fact is unfortunate but undeniably true. Traders often feel that a complex trading strategy with many moving parts must be better when they should focus on keeping things as simple as possible. As a trader progresses through the years, they often come to the revelation that the system with the highest level of simplicity is often best.
Trading with a simple strategy allows for quick reactions and less stress. One way to simplify your trading is through a trading plan that includes chart indicators and a few rules as to how you should use those indicators. In keeping with the idea that simple is best, there are four easy indicators you should become familiar with using one or two at a time to identify trading entry and exit points.
Once you are trading a live account a simple plan with simple rules will be your best ally. Because there are many fundamental factors when determining the value of a currency relative to another currency, many traders opt to look at the charts as a simplified way to identify trading opportunities. Using Technical Analysis allows you as a trader to identify range bound or trending environments and then find higher probability entries or exits based on their readings.
Reading the indicators is as simple as putting them on the chart. Moving averages make it easier for traders to locate trading opportunities in the direction of the overall trend. When the market is trending up, you can use the moving average or multiple moving averages to identify the trend and the right time to buy or sell.
The moving average is a plotted line that simply measures the average price of a currency pair over a specific period of time, like the last days or year of price action to understand the overall direction. Identifying trade opportunities with moving averages allows you see and trade off of momentum by entering when the currency pair moves in the direction of the moving average, and exiting when it begins to move opposite.
Oscillators like the RSI help you determine when a currency is overbought or oversold, so a reversal is likely. The RSI can be used equally well in trending or ranging markets to locate better entry and exit prices. When markets have no clear direction and are ranging, you can take either buy or sell signals like you see above. When markets are trending, you only want to enter in the direction of the trend when the indicator is recovering from extremes highlighted above. Because the RSI is an oscillator, it is plotted with values between 0 and The value of is considered overbought and a reversal to the downside is likely whereas the value of 0 is considered oversold and a reversal to the upside is commonplace.
If an uptrend has been discovered, you would want to identify the RSI reversing from readings below 30 or oversold before entering back in the direction of the trend. Slow Stochastics are an oscillator like the RSI that can help you locate overbought or oversold environments, likely making a reversal in price.
Sometimes known as the king of oscillators, the MACD can be used well in trending or ranging markets due to its use of moving averages provide a visual display of changes in momentum.
First, you want to recognize the lines in relation to the zero line which identify an upward or downward bias of the currency pair. Second, you want to identify a crossover or cross under of the MACD line Red to the Signal line Blue for a buy or sell trade, respectively. Like all indicators, the MACD is best coupled with an identified trend or range-bound market. How to Read a Moving Average 41 of To contact Tyler, email tyell dailyfx. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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