Tue. Mar 5th, 2024
Technical Indicators
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THE ADVANTAGES OF A SIMPLE STRATEGY

As a trader progresses over the years, they often realize that the simplest trading systems are often the besIf you are just starting out, you should look for simple trading strategies, which are the most effective.

trading strategy advice

One way to simplify your trading is through a trading plan that includes technical indicators as well as the rules for using those indicators. In keeping with the idea that simpler is better, there are four simple indicators you should learn to use, using one or two indicators at a time to identify trade entry and exit points. As long as you trade with a real account, a simple trading plan with simple rules will be your best ally.

THE TOOLS AT YOUR SERVICE FOR DIFFERENT MARKET ENVIRONMENTS

Because many fundamental factors serve to move the value of one currency against another, many traders choose to look at simple charts to identify trading opportunities. Looking at the charts, you will often find two market environments. Both of these environments are either ranging markets with two powerful levels of support and resistance, or trending markets where price is constantly moving up or down.

Using technical analysis will allow you as a trader to identify range or trending environments and then find entry and exit points. Reading the indicators is as easy as putting them in the chart. Knowing how to use one or more of the four indicators like Moving Average, RSI, Slow Stochastic, and MACD will provide you with a simple method to identify trading opportunities.

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TRADING WITH MOVING AVERAGES

Moving averages allow traders to easily spot trading opportunities in the direction of the underlying trend. When the market is trending higher, you can use one or more moving average(s) to identify the trend and the right time to buy or sell. The moving average is a line that simply measures the average price of a currency pair over time which helps us understand the overall direction.

Trading strategy with moving averages

You will notice that a trade idea was found above only by adding some moving averages to the chart. Identifying trading opportunities with moving averages allows you to see and trade in the direction of momentum, which means entering long as price moves above this price average and falling when price turns around.

TRADING WITH THE RSI

The Relative Strength Index or RSI is an oscillator that is simple and useful in its use. Oscillators like the RSI help you determine when the currency is overbought or oversold, and therefore when a reversal is most likely. For those who like to “buy low and sell high”, the RSI might be the right indicator for you.

Trading Forex with the RSI indicator

The RSI can also be used in trending markets to locate better entry and exit prices. When the markets have no clear direction and are ranging, you may have both buy and sell signals as you can see below. When the markets are trending, you should only enter in the direction of the trend when the indicator returns to its extremes (highlighted above).

Because the RSI is an oscillator, it is plotted with a range between 0 and 100. A value of 100 is considered overbought and indicates that a downward reversal is likely, while a value of 0 is considered oversold and indicates that an upward reversal is likely. If the price is moving in an uptrend, you should wait for the RSI to bounce back below 30 in order to re-enter in the direction of the trend.

TRADING WITH STOCHASTICS

The Slow Stochastic is an oscillator like the RSI that helps you locate overbought and oversold environments. The Stochastic indicator consists of two lines, %K and %D to signal your entry. Since the oscillator has the same overbought and oversold bounds, you are only looking at the %K line, which when it crosses the %D line and is above 30 indicates a strong buy signal in the trend direction.

Trading Stochastic Crossovers

Sometimes known as the King of Oscillators, the MACD can be used effectively in trending or ranging markets through its use of moving averages which provide a visual representation of changing momentum. After you identify the market environment (range or trend), there are two things you need to look for when using signals from this indicator. First, recognize the lines in relation to the zero line that identifies a bullish or bearish bias in the currency pair. Second, identify a crossing of the MACD line (red) with the Signal line (blue).

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