“How can forex indicators be harmful?” you may wonder. Aren’t they supposed to make trader’s life easier instead, help figure the market out faster, catch the trend at the stage of its emergence?
All of this is true. In the right hands, trading indicators are a powerful tool that can help make money. When using profitable trading indicators, the key precondition is to test them out and adjust it to your strategy. If a particular indicator helped your neighbor who is also trading, it doesn’t necessarily mean that it will work for you and your trading system the same way.
We have kicked off this article with shortcomings of the forex indicators and are yet to reveal their unparalleled benefits. Let’s examine this topic thoroughly so that you can use this fantastic trading solution to your advantage and make most of it.
When starting to trade in the foreign exchange, the majority of newbies mistakenly assume that mathematical indicators are incredibly complex and thus unnecessary tools they can get by without. Simple unwillingness to learn the operating principles of mathematical indicators is the reason behind this misconception.
However, as soon as the traders try them out for the first time, they realize how helpful indicators can be, providing better understanding of the market. Eventually the screen of their trading terminals gets taken over by a huge number of trading indicators leaving barely any room for the chart itself.
This is why you can often come across entire trading modules consisting of two, four, six and even eight monitors displaying individual market elements.
It is rather unsurprising that the traders tend to use so many indicators in their day-to-day activities as they help them to identify divergence, overbrought and oversold areas, fractals, volume and trend strength.
Aside from that, some indicators have built-in features of visual and sound alerts signaling when there is a right time to enter or exit position.
Most indicators also serve as a basis for development of automated (robotic) trading systems which are able to trade in standalone mode.
Their task is to identify and display the key trend direction, or its change. These indicators include Moving Average, Ichimoku Kinko Hyo, Parabolic SAR, Bollinger Bands etc.
This type of indicator is designed to determine the time when price values reach the overbrought and oversold areas, and in doing so help traders understand where the market tops and bottoms are.
Below are some of them:
The market profiles allow the traders to catch the right wave. Horizontal volume indicators help to filter off false signals and draw support and resistance levels more accurately. They aren’t easy to use but their effectiveness is indisputable. One of these tools is Real Market Volume.
Be sure to use indicators with caution and keep in mind that no matter how reliable the one you pick seems to be, its meaning is still secondary for the market and not the other way round.
That being said, it often happens that traders rely on and trust indicators to the point that they do not factor in other vital aspects and thus make wrong decisions in the most crucial moments.
In addition, you may often notice that indicators tend to contradict one another. Because of this, the trades find themselves in a rather tricky situation especially when Moving Average signals that the trend is gaining momentum and will continue to grow while Relative Strength Index or Stochastic indicates that the price has already reached its maximum value.
However, you can still read the clues given by indicators if you spend a little bit of time learning how each of them works and pick those you find most convenient and clear to trade with.
At the same time, keep in mind that mathematical indicator is not a trading system but just a part of it which is able to either confirm or refute your trading decision.
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