Forex traders who are just starting out and want to get into technical FX trading can be a bit overwhelmed by the dizzying array of indicators available.
Each one has its own complications, pros, and cons. And it can certainly take some time to learn how to use them properly!
Picking the right forex indicator to start with can be a bit of a challenge. An option that some beginner FX traders take is to use a lot of indicators. Unfortunately, they soon find that they are inundated with signals, and fall into what some people call “analysis paralysis”.
Not having the time or attention to get the most out of each forex indicator, they find their strategies not as successful as if they’d focused on a few indicators.
So, where would be a good place to start?
The Best is a Matter of Personal Taste
One of the ways to go about this is to just use whichever indicator is the best.
However, virtually no FX trader uses only one indicator. And, often, the results forex traders get depend more on how they interpret the indicator than the indicator itself. That’s without getting into how money and risk management play into a forex trader’s strategy.
We could go with the most popular indicator, and conclude that if most experienced FX traders use it, then it must at least be near the top of the best.
The problem is that what’s best for experienced forex traders doesn’t mean it’s good for beginners. The MACD is a very sophisticated and versatile forex trading tool. But, that makes it harder for beginners to get used to right away.
The Basics Are Not Bad
The thing about beginners is that they are gaining experience. They will likely move on to more sophisticated tools in the future. And this is why Moving Averages are really the best indicator for beginners!
They are not a simple sure-fire way of winning at forex. But that’s fine because there is no such thing anyway!
More “advanced” indicators might give more clear signals, but you need to know how to interpret them.
The advantage of moving averages, whether exponential or simple, is that they form the basis of most other indicators. Getting experience in and a good grounding in MAs will help you in the future. As a more experienced forex trader, they’ll help you understand a more complex market as well as more complex indicators.
Stick With It
Moving averages can be a bit frustrating to work with. That’s because they are simply smoothing out price action without giving you all that much information.
But, you can combine different ones to generate your own signals, using mathematical principles. They are a great way to learn how to tweak settings in order to bring out the information you need from the forex market. If you are trading with a forex demo account, you absolutely have to be using moving averages at least a bit!
Another indicator that is also really easy to use, is the Relative Strength Index (RSI). It can help alleviate some of the frustration of the moving averages because it tends to be a lot clearer.
How it Works
RSI works by reading price action. It measures whether a currency pair is getting overbought or oversold, and therefore whether it is about to change direction.
When it moves beyond 70 in either direction, it means that the market will likely change direction in the near future. And there is a trade opportunity!
These two forex indicators tend to work really well together. In fact, you should use them to confirm each other before jumping into the market.
And they both serve as a useful base from which to move on to other more sophisticated forex trading indicators. Despite being relatively simple, they are quite versatile and can be used to build much more advanced forex trading strategies as you gain experience.