During the early stages of a trading career, traders often come across some different trading methods. It doesn’t matter what strategy you choose, many trading opportunities can actually be identified easily through just one type of indicator.
Once you understand how to take advantage of price action, moving averages, RSI, stochastic, and MACD, traders are on the right track to start gaining profit from trading, even with a simple strategy. The problem is that many traders complicate themselves by creating complex strategies.
Traders often feel that a complex strategy with extraordinary details will perform better than a simple strategy that focuses on only a few areas. In fact, a simple strategy allows traders to react faster and with less stress.
Choosing Indicators For Simple Strategies
If you are just starting in forex, this is the perfect opportunity to find the perfect combination of one indicator with a simple strategy. One of the best ways to simplify trading is to create a trading plan that involves charts with only a few rules.
There are at least five indicators that are most effective at identifying trade entry and exit points. Once you start trading life, one simple indicator and strategy can be the perfect package for making a profit. Some fundamental factors influence the exchange rate of one banknote bill to another.
To see this difference, traders often observe charts as the easiest way to identify emerging trading opportunities, combined with indicators. When looking at the chart, traders will notice two common market behaviors that indicate a trend towards the movement.
The two behaviors referred to are when the market experiences a range with strong support or resistance levels, and when the market experiences a breakout or a strong trend in one direction. Technical analysis allows traders to identify ranges or trends and then find the highest entry and exit opportunities based on observations.
# 1. Price Action
Price action, in this case, is interpreted as a pattern of price movements and is sometimes seen as an indicator in itself. Traders must be good at reading what is happening to the price before using real indicators. When a trend is found, traders can then ‘consult’ the indicator to see entry signals in the direction of the trend.
Try to observe the 1-hour EUR / GBP chart above. What is most visible on the chart is the decline in the value of the currency. This can be seen because in longer time frames, 4-hour, or daily charts, for example, the currency has changed its highest low and lowest low which strongly reflects the downward trend.
Also, on each chart, the currency is traded below the SMA 200 period. For example, using a strength/weakness analysis, traders will find that EUR is weaker and GBP is in a strong position. Armed with this information, traders should sell currencies because the trend is supportive and trading has a high probability of winning.
Next, let’s look at the indicators on the chart. There are three indicators installed on the chart, namely stochastic, MACD, and CCI. When the trend is down, the entry signal for short positions from each indicator is: stochastic, which is when the Kline (blue) crosses the D line (red) going down, MACD is when the MACD line (red) crosses the signal line (blue) downward, and CCI, which is when the CCI line crosses the number below +100.
As you can see from the chart, each indicator can show a buy signal at the same time. If all the same, then which is the best? Referring to the display on the chart, all indicators give the same signal at the same time. The choice depends entirely on one type of indicator the trader feels comfortable using.
# 2. Moving Average
One of the most effective trading indicators for all strategies is the moving average (MA). The MA indicator will make trading more potential for traders when looking for the highest opportunities that are in line with market trends in general.
When the market is in an uptrend, traders can take advantage of the MA or several MAs at once to confirm the trend and find the right time to buy and sell positions. MA will display a line that results from the calculation of the average fraction price of a currency with a specific time period.
Traders can choose the 200 periods if they want to understand more about market behavior. It can be seen from the picture that trading opportunities can be obtained with only one MA or more. Identifying trading opportunities with MA allows a trader to see the best price momentum according to the general movement of the market and exit when the movement starts to fight back.
# 3. Relative Strength Index
The relative strength index (RSI) is a simple oscillator and is very helpful in practice. Oscillators such as the RSI help tell if a currency is overbought or oversold, or even if there is a price reversal.
For traders who are willing to buy low and sell high, the RSI can be the most needed key indicator. RSI can be used in a balanced way for market trends and ranges so that it gets the right entry and exit positions.
When the market has no clear direction of movement and then a range occurs, traders can use buy or sell signals as shown in the picture. When the market is trending, it becomes easier for traders to open trades and the positions taken must be in the direction of the market in general.
Since RSI is an oscillator, the count of the numbers displayed is 0-100. The number 100 indicates the market is overbought, and the reverse value of 0 indicates the market is in an oversold period. If an uptrend is found, the trader should be able to read the RSI before opening another trade.
# 4. Stochastic
Stochastic is an oscillator that is similar to the RSI and can help traders read the market whether it is in an overbought or oversold period, especially if there is a price reversal. One of the most unique aspects when using stochastic in trading is related to the% K and% D lines as entry signals.
Since oscillators are also able to read oversold and overbought readings, traders can see if the% K line crosses the% D line for a valid buy signal in the direction of the trend. The opposite condition can be done by traders if they want to look for sell signals using stochastic.
# 5. Moving Average Convergence / Divergence
Often referred to as the king of the oscillators. Moving average convergence/divergence (MACD) can be used effectively in market ranges and trends because it uses MA elements to present changes in momentum in the market.
When a trader can identify market behavior whether it is trending or a range, there are two main things that traders must pay attention to if they want to look for trading signals from this indicator. First, traders must understand the line associated with the zero lines to identify the rising and falling bias of a currency.
Second, the trader must be able to identify the upper and lower crosses on the red MACD line for a buy signal and the blue line for a sell signal. Unlike all indicators, MACD is much more effective for trends or ranges. Once the trend has been identified, the trader can place a stop below the most recent price before the cross and set the limit to twice the risk value.