Indicators are very popular among rookie traders. The rookies always think that by using too many indicators they will be able to find the perfect trade signals. But the use of too many tools often makes things complex. Instead of relying on a complex trading method, you should use a smart trading strategy like the top traders in the Mena region. Successful traders rely on simple concepts like support and resistance to find profitable trade signals. They rely on the most popular indicator to assess the quality of the trade signals.
Though there are hundreds of indicators in the Forex market, today, we are going to discuss the top five most frequently used indicators.
1. RSI indicator
RSI stands for relative strength index. It helps retail traders to find the overbought and oversold state of an asset. If you do math properly, you can easily find the key reversal point with the help of the RSI indicator. The default period in the RSI indicator is set to 14 but if you intend to get a sharp signal line you should set the period to 9. Now let’s come to the reading of the RSI indicator. If the RSI reading stays above the 70 line, you may consider the market is in overbought mode. So, you should be looking for the sell signal. On the other hand, if the RSI reading stays below the 30 line, you may consider the market is in the oversold mode. So, looking for the buying signal will be a wise decision.
2. Stochastic indicator
The functions of the stochastic indicator are very similar to the RSI indicator. It helps you to find the overbought and oversold state of the market. But while using such oscillators, you must choose a reputed broker. Many traders consider Saxo since they always offer a premium trading platform. With the help of the premium trading platform, you can easily evaluate the condition of the Forex market and find reliable trade signals. Regarding the reading in the stochastic indicator, if the signal lines trade below the 20 level, look for the buying opportunity. On the contrary, if the signal line is trading above the 80 level, consider it as a sign of an overbought market.
3. Bollinger band
The novice traders love to use the Bollinger band. It creates a simple price channel and helps to find the potential support and resistance level. The lower band act as the dynamic support and the top band act as the resistance. So, if you spot a bullish price action signal at the lower band, you may take a long trade. On the contrary, if you spot a bearish rejection at the top band, you can take the short trade. While using the Bollinger band indicator, you must select the higher timeframe. Avoid taking any trades right before the release of high-impact news.
4. Moving average
The moving average is one of the most widely used indicators in the Forex market. However, very few traders know the proper way to set the period in the moving average. Instead of using the lower period in the moving average, we recommend that novice traders start using the higher period. For instance, if you use the 200 or 100-period moving average, you can easily spot the support and resistance level. But do not take trades based on the data reading from this indicator only. You need to integrate other essential factors into it to improve the efficiency of your trading system.
5. Parabolic SAR
The parabolic SAR is often used to ride a long-term trend. If you execute a long trade, you can keep the long order open till you see small green dots below the candlestick. The green dots below the candlestick signifies that the bulls are still in control of the market. Similarly, you need to look for green dots above the candlestick while riding a bearish trend.
