Best forex technical indicator combination

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Momentum Indicators , such as the Relative Strength Index RSI , allow you to determine the direction and strength of a current price trend. As an asset begins to build momentum, opening a new position will become less risky. Looking at Moving Average indicators also help you gauge momentum.

Volume Indicators help traders identify the strong relationship between price and volume. Increases in trading volume almost always result in an increase in price. However, these events do not always occur at the same time, which is why volume indicators are good for advanced forecasting. As you can see, while these categories of indicators are trying to determine the same thing—whether prices are about to increase, decrease, or remain stable—the angle they each offer is unique.

Looking at the market from multiple different angles can help you develop a more accurate, realistic, and actionable perspective. Essentially, if you trade with a multi-indicator strategy that uses the RSI indicator , MACD indicator and the stochastic indicator you are basically using 3 types of technical indicators that belong in the same category. These are all momentum indicators that are going to display for you the same kind of information in one way or the other.

In the above figure, you can notice how all indicators follow each other simultaneously. This is not good! The fix to the overemphasizing information from using indicators that belong to the same group is quite simple. Avoid using technical indicators that display the same kind of information. The best strategy multiple indicators combine indicators that show a different type of information.

Best Strategy Multiple Indicators Now comes the fun part. The Relative Strength Index is a momentum indicator and a leading indicator at the same time. We use the RSI indicator to identify possible overbought and oversold conditions in the market. The OBV indicator is based on the idea that both the volume and the price activity are equally important. In this regard, the OBV combines both price and volume to show you the total amount of funds going in and out of the market.

The screenshot above shows how your chart setup should look if you followed the above instructions. The main idea behind the On Balance Volume indicator is that the market price will follow where the volume flow is going. Ichimoku Kinko Hyo will plot several different lines on a chart that make it easy to identify future instances of strong support or resistance.

In order to get an accurate movement reading, each of these lines will need to be accounted for. The blue line the base line will plot the average of the highest high and the lowest low over the past 26 trading periods. Similarly, the red line the turning line will plot the average of the highest high and the lowest low over the past nine trading periods. The lagging green line will plot the closing price 26 periods in the past. This will help provide you with a better perspective on monitoring trends.

The first band will be calculated by averaging the blue and red lines together. The second band will be calculated by averaging the highest high and the lowest low over the past 52 trading periods. The last step is to take the trend line and shift it 26 periods ahead. Once all of these lines are plotted together, you will have a wide-reaching view of the market. From here you will be able to decide whether there is a trend strong enough to justify opening a new position.

Bollinger Bands — Trend Following Indicator Bollinger bands is the best trend following indicator that measures the volatility of any given market. Buying and selling based on the Bollinger bands can be a very effective trading strategy especially if used in combination with other technical indicators. Finally, your chart setup should look similar to the above chart. Multi Indicator Strategy For our strategy, you will need to use three to four technical indicators in order to successfully trade.

Collectively, these indicators account for the trend, momentum, and volume aspects of trading that all traders should pay close attention to. Now, before we go any further, we always recommend taking a piece of paper and a pen and note down the rules of the trading strategy. So the first trade confirmation we need is for the price to break and close above the middle Bollinger band.

Once this trade condition is verified, we can check the other indicators for adding more confluence to our trade signal. We always try to make sense of how to correctly interpret the action of any given technical indicator. During this step, we seek to find an agreement between what the Bollinger Bends is saying and the RSI own price reading. Ignorance may be bliss, but it is likely not the path to successful forex trading. The best traders consider all the information available to them and use this information to execute trades with confidence.

Proprietary indicators are of interest here as they are not always based on OHLC data, so can be much more useful in confirming a signal from a standard indicator. Another reason proprietary indicators are useful is they can eliminate subjective elements of price action analysis. For example our Auto Trendlines indicator which draws trendlines for you based on a consistent criteria.

Although the final Hull sell signal is quite good in isolation, similar to our original example with RSI, it has not issued a take profit signal yet, despite a significant decline and modest bounce. Sentiment is also neutral on this particular occasion, giving us no clues as to whether or not we should take profits.

Our price action indicators on the other hand really do the job — they suggested two prime selling opportunities before the Hull even started falling and the decline into the channel floor is the perfect time to take profit. Note that the Hull is not redundant here either: after we short the reaction from the channel top and resistance zone, it confirms the trend has indeed turned lower, and then acts as a backup exit plan if we fail to take profits at the lows.

Combining proprietary indicators with more traditional ones in this manner opens up a whole world of possibilities for improving your trading strategies and getting the best results from your forex trading.