Indicators work like a charm when you know the perfect use of these tools. The traders in Hong Kong often try to buy expensive indicators only to improve their win rate. However, many traders often get confused with the perfect use of an indicator. Though there are thousands of indicators available in the market, we are going to discuss the top four indicators used by the experienced traders. These are –
3. Moving Average
4. Harmonic pattern
The stochastic indicator is a leading indicator and it works like the oscillator. The indicator has two extreme value, the upper cap is set to 100 and the low cap is at zero. When the oscillator curve crosses above the 80 levels, you can expect a bearish momentum. On the contrary, if the curve hits below 20 marks, expect to see some bullish rally. This two-stage can be identified as the overbought and oversold region. If you intend to develop a trading strategy based on the oscillators, try to not use this indicator in the 1-hour time frame. Using it in a higher period always generates better results.
RSI acts more like the stochastic indicator. The experts use it to find the overbought and oversold region of the asset. You may be wondering why the professional traders are using the RSI (Relative Strength Index) to analyze the price chart in the Forex market when they can do it with the help of a stochastic indicator. There is a small tweak in the RSI tool and it allows them to analyze the major pair’s movement much more accurately. Trading the lowly volatile market with the help of stochastic indicators requires default setting change. But if you use the RSI trade in the stable market, you won’t have to change the settings.
Moving average might be the most popular indicator in the Forex market. Thousands of trading strategies can be developed based on the concept of the moving average. But if you explore the moving average indicator you will find different types of moving average. The scalpers use the exponential or weighted moving average as it reflects the real-time price movement with accuracy. On the contrary, those who are position traders use the simple moving average. But using the moving average to place your trade is a very big mistake. Never think indicators should be considered as your trade triggering tool. You have to develop the habit of using critical support and resistance level at trading or else you will never get benefit by using the moving average.
There are many kinds of harmonic patterns used by professional traders. Harmonic patterns are mostly used by advanced traders. Those who are using the manual method to draw the harmonic pattern is having a night market. Learning to draw the key lines using the retracement ratio requires in-depth knowledge of math. But with the harmonic pattern indicator, you can avoid these hassles and make some quick decisions. At the initial stage, stop trading the reversal harmonic pattern as it has high-risk factors. Try to find high-quality trades by using the key metrics of the market. Take your time and focus on the trend trading method. Never think you can make huge profits by riding a newly form market trend.
The professionals always prefer to stick to the major trend and you should do the same. But when you use the harmonic pattern, try to use the SMA as it gives more information about the price movement. But never make things too much complicated as it makes trading more complex. Try to use the basic methods of technical analysis and use the major patterns. And if you lose a trade based on this indicator, try to find the exact cause. And make sure you always use the updated version of this indicator.
Carolyn Coley is a blockchain reporter. She joined Smartereum after graduating from UC Berkeley in 2018.