Writing about the best technical indicators in Forex might sound contradictory coming from me. I have consistently proclaimed the power of the fundamentals and the folly of relying solely on charts.
However, I do also want to avoid any misconceptions that I’m against technical analysis completely.
I do use technicals and have done so for many years.
The main point of what I teach is simply that applying the fundamentals will give you confidence.
Without confidence you will never make money because you will never truly believe in the way that you trade.
This leads to constant switching and searching for the next best ‘strategy’ or ‘indicator’. It is this inconsistent approach that ultimately holds all retail traders back.
The root of this is that they are blindly following some system that they cannot explain. When you actually understand why the price is moving this allows you to focus on improving your own trading development.
Your self-improvement as a trader is far more important than any ‘system’ that you trade with. You need an edge. But every system has losses and it is how you approach them that will define you.
Most of the traders that follow us here understand this concept and accept that the fundamentals give you confidence.
Beyond this, many people want to know what technical indicators I believe are the most effective. Quite rightly, they want to know the very best technical indicators in Forex.
In response to this I will share my own thoughts on this here.
The Best Technical Indicators In Forex
When trying to analyse the price I personally prefer to keep it as simple as possible. My belief is that the more that appears on a trader’s chart, the less they actually know about trading.
One of the very best technical indicators in Forex are candle stick charts and the various patterns that they form.
Candle sticks give a nice visual representation of what the price has done recently. This can tie in nicely with the sentiment of the market. It is also possible to judge the sentiment from the way that price is moving, if you have enough experience.
This usually happens when a fundamental move has been overextended. It can also happen when there is not much fundamentally going on.
For example, when the price is at a previous level of support or resistance you will see that it wants to break it. This is manifested as it repeatedly tests the same level.
Each time the level holds on a reduced scale. The first time it may strongly push the price away. By the third or fourth time the reaction might be much more muted.
This gradual breakdown of a previous level of support or resistance, as displayed via a candle stick chart, can be a great indicator.
The price in the form of candle sticks is something I am highly familiar with. When analysing a price chart this is always my base indicator.
Candle sticks allow me to see where the market has previously been buying or selling. These levels are known as support and resistance levels. These levels are very powerful indications of where the price might react from next.
Other indicators that I use
Aside from pure price charts I also apply other technical indicators from time to time.
I mainly use these to assist with my entry into the market. The best way to apply these tools is in line with the existing flow of the market.
For example, I might believe that a certain pair will probably be heading lower through the next session. In this case, I will either want to sell it immediately or wait for some kind of price based opportunity.
Such an opportunity could come in the form of the price pulling back against that expected trend. In the example above, if the price rallied then I would be waiting for the market to sell into that rally.
Fibonacci and pivot points can be really helpful. They allow me to see specific price levels that other traders might be watching too.
Pivot points can be really useful as they are designed to display certain zones on the price. For example, the area above the central pivot point is generally known as the ‘selling zone’. The area below it is known as the ‘buying zone’.
So if we have a bearish sentiment, and the price then pulls back up to the central pivot into the selling zone, then this is a great place to think about selling into the rally.
It works in the same way when trying to buy a pair.
Fibonacci works in a very similar way. It measures the price and then provides levels that you can use to buy or sell from. Another great tactic is to combine both pivot points and Fibonacci levels so that you have a confluence.
These confluences will very often generate reactions that you can see play out time and again.
Applying Technicals Correctly
Talk of selling zones and specific price levels can sound extremely appealing. The temptation is to blindly rely on these things and hope it brings you success.
The reality is that you must engage with the market and understand what is driving it. This even applies if you are trading with technical indicators.
A combination of tuning into the fundamentals driving the market and spotting solid confluence levels to enter from have given me great success.
You do not need to over complicate your use of technical indicators. Simple tools like pivot points and Fibonacci retracement levels are ample when trying to apply the fundamental accurately.
If you are unfamiliar with these tools then there are many free resources all over the internet that will teach you.
Should you want to understand the most famous technical analysis indicators better, I would personally suggest Babypips.com as a great place to start.
If you already have your favourite technical indicators then it is almost certain that you can apply them in line with the fundamentals and improve your results.
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