The first thing to remember when using an indicator, any indicator, is that it is a function of price action. The indicator itself is not the ultimate tool when it comes to trading…it comes in behind price action.
Price action governs the information that the indicator will ultimately provide on the chart. As such, a trader must determine what price action is doing i. Once the trend is determined, the trader can then consult the indicator for an entry signal in the direction of the trend.
First of all we note that the currency pair is in a downtrend. We know this because on longer time frames, the Daily and the 4 hour, the pair has been making lower highs and lower lows which signify a downtrend. Also, on each of the charts, the pair is trading below the SMA. Given each of those pieces of information, we know we want to sell the pair since that is the direction of the trend and that will be the higher probability trade.
In a downtrend, the entry signals for a sell from each indicator are as follows: As can be seen on the chart, each of the indicators provides a sell signal at virtually the same time. In my opinion, in this key area they are all the same. They all provide the same signal at the same time.
The choice will depend on the one that each individual prefers. Once you make your decision on which you like the best, stick with that one and discard the other two. Having all three on a single chart would be redundant. Introduction to Technical Indicators.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Click here to dismiss. Discovering the "Best" Indicator to Use. Price action is Indicator 1.
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