The theory here is that the trend is favorable when the day moving average in yellow is above the day average in blue and unfavorable when the day is below the day.

As the chart shows, this combination does a good job of identifying the major trend of the market—at least most of the time. However, no matter what moving-average combination you choose to use, there will be whipsaws. The advantage of this combination is that it will react more quickly to changes in price trends than the previous pair.

Many investors will proclaim a particular combination to be the best, but the reality is, there is no "best" moving average combination. In the end, forex traders will benefit most by deciding what combination or combinations fits best with their time frames. From there, the trend—as shown by these indicators—should be used to tell traders if they should trade long or trade short; it should not be relied on to time entries and exits.

Now we have a trend-following tool to tell us whether the major trend of a given currency pair is up or down. But how reliable is that indicator? As mentioned earlier, trend-following tools are prone to being whipsawed. So it would be nice to have a way to gauge whether the current trend-following indicator is correct or not. For this, we will employ a trend-confirmation tool. Much like a trend-following tool, a trend-confirmation tool may or may not be intended to generate specific buy and sell signals.

Instead, we are looking to see if the trend-following tool and the trend-confirmation tool agree. In essence, if both the trend-following tool and the trend-confirmation tool are bullish , then a trader can more confidently consider taking a long trade in the currency pair in question. Likewise, if both are bearish , then the trader can focus on finding an opportunity to sell short the pair in question.

One of the most popular—and useful—trend confirmation tools is known as the moving average convergence divergence MACD. This indicator first measures the difference between two exponentially smoothed moving averages. This difference is then smoothed and compared to a moving average of its own. When the current smoothed average is above its own moving average, then the histogram at the bottom of the chart below is positive and an uptrend is confirmed.

On the flip side, when the current smoothed average is below its moving average, then the histogram at the bottom of the figure below is negative and a downtrend is confirmed. In essence, when the trend-following moving average combination is bearish short-term average below long-term average and the MACD histogram is negative, then we have a confirmed downtrend. When both are positive, then we have a confirmed uptrend. At the bottom of the chart below, we see another trend-confirmation tool that might be considered in addition to or in place of MACD.

It is the rate of change indicator ROC. As displayed in the chart below, the orange-colored line measures today's closing price divided by the closing price 28 trading days ago.

Readings above 1. The blue line represents a day moving average of the daily ROC readings. Here, if the red line is above the blue line, then the ROC is confirming an uptrend. If the red line is below the blue line, then we have a confirmed downtrend. A bearish configuration for the ROC indicator red line below blue :. After opting to follow the direction of the major trend, a trader must decide whether they are more comfortable jumping in as soon as a clear trend is established or after a pullback occurs.

In other words, if the trend is determined to be bullish, the choice becomes whether to buy into strength or buy into weakness. If you decide to get in as quickly as possible, you can consider entering a trade as soon as an uptrend or downtrend is confirmed. On the other hand, you could wait for a pullback within the larger overall primary trend in the hope that this offers a lower risk opportunity.

There are many indicators that can fit this bill. However, one that is useful from a trading standpoint is the three-day relative strength index , or three-day RSI for short. This indicator calculates the cumulative sum of up days and down days over the window period and calculates a value that can range from zero to If all of the price action is to the upside, the indicator will approach ; if all of the price action is to the downside, then the indicator will approach zero.

A reading of 50 is considered neutral. Generally speaking, a trader looking to enter on pullbacks would consider going long if the day moving average is above the day and the three-day RSI drops below a certain trigger level, such as 20, which would indicate an oversold position.

Conversely, the trader might consider entering a short position if the day is below the day and the three-day RSI rises above a certain level, such as 80, which would indicate an overbought position. Different traders may prefer using different trigger levels. The last type of indicator that a forex trader needs is something to help determine when to take a profit on a winning trade. Here, too, there are many choices available. In fact, the three-day RSI can also fit into this category.

In other words, a trader holding a long position might consider taking some profits if the three-day RSI rises to a high level of 80 or more. Conversely, a trader holding a short position might consider taking some profit if the three-day RSI declines to a low level, such as 20 or less. Another useful profit-taking tool is a popular indicator known as Bollinger Bands. This tool takes the standard deviation of price-data changes over a period, and then adds and subtracts it from the average closing price over that same time frame, to create trading "bands.

A trader holding a long position might consider taking some profits if the price reaches the upper band, and a trader holding a short position might consider taking some profits if the price reaches the lower band.

A final profit-taking tool would be a " trailing stop. There are many ways to arrive at a trailing stop.

You can find the economic calendar easily enough with an internet search. There is also one available on TIO Markets website. Sentiment indicators can help you gauge what the general opinion is of the other market participants from the positions they have taken.

Sentiment should be used as a contrarian indicator, to help you form a direction bias regarding what direction you should be trading in. Since most people lose money trading and usually get the direction or the timing wrong, you can use this Forex indicator to do the opposite of what the majority are doing. So if you see that most people are long the GBPUSD, it might be a good idea to look for sell opportunities and vice versa if most people are short.

You can check what TIO Markets clients are doing by visiting the sentiment page on TIO Markets website to help you make better informed trading decisions. The ATR, which is an acronym for Average True Range , is one of my favorite Forex indicators.

If I had to recommend one indicator from this list that you should investigate further, it would be this one. I will tell you why in just a minute but first, let me explain what this forex indicator is and what it does. The ATR indicator measures and records the average true price range, for any given time interval. This measurement is taken from the distance between the highest and lowest price for each trading interval or candlestick.

Then it adds them together and divides the distance by the number of intervals the indicator looks back for. So an ATR of 10 on the daily price chart would calculate the average daily price range for the last 10 days. An ATR of 1 would just give us the true price range for each of the previous days. The reason why this indicator is so useful is because it measures volatility and shows us how much a currency pair has moved, or how far it might likely move in the future.

Knowing this can significantly improve your decision making process because you will have a better idea about how much room the price still has to move as the trading day, week or month is unfolding. This can be of huge benefit to a trader in several ways. First, it helps you determine whether you should initiate a trade.

Second, it helps you identify likely price objectives and safer stop loss areas. Lastly, it can help you estimate how long the trade might take. I have added the ATR indicator on the daily time frame.

The indicator is showing me that the average true range for this currency pair is pips over the past 10 trading days. Now that I know what this currency pair is capable of doing and what it might likely do, I can make better trading decisions as the day is unfolding. So if it is halfway through the trading day and the price has been stuck in a 40 pip price range, I know that there is a good probability that the price will seek new highs or lows.

I can see from the histogram that, it is very unlikely that the daily price range will remain at or below 40 pips. If it is halfway through the day and the price has already exceeded its average range, then it might be a better idea to not initiate any trades seeking further price movements beyond the current high or low. Trading by analysing the price and the price alone offers a level of simplicity and insight that would otherwise be obscured to you when trading.

However, some traders overlay too many other indicators on their charts and that distracts them from it. So my suggestion would be to bring your focus back to price and to the essence of what you should be doing as a trader. This is, buying when the price is relatively cheap and trying to sell for a profit when the price is relatively expensive. I am going to give you three simple techniques using price only that you can apply to your trading.

You can get a decent idea what fair value is by looking for price areas on your chart where price seemed to gravitate towards the most. The most popular price for the GBPUSD since February of this year seems to be 1. You can tell this just by looking at how many times the price visited and traded around this area. When price was above fair value, it was relatively expensive and reverted back towards it. When price was below fair value, it was relatively cheap and reverted back towards it.

You can look for these popular price areas on your charts then look for signals to trade back towards them. There will be shorter, medium and longer term fair value areas so use multiple time frames. Another simple technique you can apply to your trading is to use price to locate areas to buy and sell from.

Look at this chart; I have marked all the big round numbers with green horizontal lines. What I mean by big round numbers are the whole numbers, like 1.

Notice how often the price bounced around these prices. They are significant psychological numbers that can support or reject price. Like 1. The third and the last technique I want to talk about for using price as an indicator is related to recent highs and lows.

Through observing price behaviour over a long enough period of time, I can confidently say that price is always seeking to trade back towards relatively recent highs and lows. When the price trades up and makes a high and then reverses and makes a relative low, price will not stay confined between these points for long. Of course, the time frame you are looking at will determine whether it will happen sooner or later but it is just a matter of time.

Recent highs and lows, the round numbers and popular prices are very useful indicators you can use in your trading. They act like magnets for price. Price is simultaneously moving away and towards them. Which leads me in to the fifth and final best Forex indicator on this list. Along with price, time is the other necessary variable needed to create the charts we look at. So, it stands to reason that it is an important indicator for forex trading.

When you combine time with price, your trading strategy can be even more accurate than what it was before. Price can help you determine where to trade but time will help you to determine when to trade. In forex trading, being in the right place at the right time helps you to capitalize on opportunities.

Furthermore, when you factor time in to the decision making process, you become more patient. This is a trait that all successful traders have. Therefore, if you can wait for the best times to trade, you will improve your probabilities of making successful trades.

Are you unsure, and ask how to trade Forex with indicators? How many times have you lost a trade because you was using Forex indicators? You should not trade Forex with indicators, because indicators are just too slow to use in live market conditions, causing you to never capture winning trades. Analysis done using Forex indicators can change in seconds and cause you to lose profits, and can be known as a lazy mans way of trading. Lets cover in more detail the top 4 Potential hazards with how to trade Forex with indicators, or should I say without indicators!

that cause you to pull your hair out! It took me some time to realise that using indicators was like actually burning my profits! The biggest problem traders face today is not actually knowing how to trade Forex with indicators properly with their trading.

Read this lesson to the end, and find out the one indicator you can use today and make profits with it! If you are new to Forex trading, then you will probably have seen all the advertisements on the web. Trying to sell the next shiny indicator based strategy.

These sharks or should I say internet marketers, know exactly what they are doing by playing on your emotions with trying to sell you something that they love to sell. Unfortunately…These internet marketers are very clever when it comes to writing things down on the web.

They will show you with their words of wisdom and using chart examples, of how the indicator is the best on the planet! They know exactly how to play on your emotions when it comes to trading the markets. At the end of the day they are just stealing your money. Most of these indicator based strategies will be on how to buy here, and sell here in the market. As a Forex Trader you need to learn the skills or should I say your Forex trading education to become successful in this industry.

I will discuss later on exactly how you can go from how to trade Forex with indicators to trading with just price on the chart, and why this will turn your trading around just as it did for me. But… by the time you actually see the entry to capture that winning trade.

It was just too late because the indicator was showing the entry after the move. Take a look at the chart I have posted above, see how the MACD signal line is moving at a snail pace lagging behind price! Reason this snail pace happens is because of what they class as the indicator lagging behind.

Well…I did some research myself when I was using indicators, and realised that price is what actually moves on the chart, not the indicators! Now: price is moved by traders across the world, and that is moved by their emotions with trading. The answer is simple.. With actually trading just the price on the chart.

Why not read this recent article I wrote all about the use of technical indicators and price, and see why I removed those indicators off my charts by clicking here. So in this lesson I am going to cover many different options with how to trade Forex with indicators and the Forex indicators you might be using to trade the market, that lag behind price.

There are many different indicators you could use with your trading: such as I have already shown with the MACD above. All of them, will lag dramatically behind price, and will cause you to enter trades after the move has been made. In other words: You will take buys and sell trades at the end of the move, than buying or selling from the beginning of the move.

This is where you are eventually going to blow your trading account, and unfortunately where most new retail traders find themselves when trading with indicators. One of the most commonly used how to trade Forex with indicators that new traders use is the moving average cross over. You get the picture! Plus, also a price action trade for a entry. Many traders see this indicator as a way to catch moves from the very start of the move.

But, more on why that is, later on…. So, how does the Stochastic lag behind price and cause you to miss the move compared to a price action entry. With the Stochastic, you are supposed to wait for the two lines to cross over just like the moving average cross over. There is also an area which is referred to as the overbought and the oversold area within the Stochastic. This is taught to be the placement, where you would look for the crossover entry.

I will go into more detail on that subject later on with how to trade Forex with indicators and how using indicators for your analysis can change and cause you too lose profits. Now, there will be times you can use the Stochastic to catch trades even with the cross over. But the losers will out due any winners you might capture using this as a strategy. Lets, now see an example of using the standard indicator settings of the Stochastic of a and a price action trade for an entry.

As you will have seen, trying to capture this buy trade on the GBPUSD pair, using the Stochastic the move has already happened. Using just a price action for the entry, with combining market structure and the trend line. You would have caught this entry right before the large move even happened. So, when it comes to how to trade Forex with indicators, just remember this: that they all lag behind price. Another problem you will find with using Forex indicators, is going to be how they clutter your charts.

Think about it… when you add these indicators onto your charts, how many do you actually use? One, two, three or even ten. Imagine this for a second… you are driving down the motor way, it starts to rain heavily, you know how bad it can get especially when stuck behind a lorry with the water spray! When you continue to add too many Forex indicators. As well as that, another problem with how to trade Forex with indicators will cause you.

Is to see setups with just the indicators than reading price signals. Again, with them cluttering your charts, you tend to then just read the indicators and nothing else. You are just trading and making all of your decisions on lagging indicators. Which ends up with you making loss after loss and heart broken again. So I suggest, to either remove all of those indicators from your charts. Or, at least try to only use one or two maximum, until you are confident to lose them all together.

That brings me onto the next problem with how to trade Forex with indicators. With how using them to make your trading decisions can change and cause you to lose profits.

Just like how these Forex indicators will lag behind price, they can also change after an entry and cause you to lose profits. So… what do these two indicators have in common, well.. basically they show turning points in the market. But, the problem with trying to use them in this way, is they lag behind price and can change their appearance after an entry has been taken. One of the biggest issues traders fail to realise, is they are always trying to find turning points in the market, and with how to trade Forex with indicators.

This in itself is going to set you up to fail in the market. You may have come to realise these are when you actually have the most losing trades, trying to pick these tops and bottoms. To just find price continues, to move in line with the same direction. Or more known as a dynamic area of resistance and support in the market. With the outer bands, which are classed as 2 deviations. In fact, every time you try and sell off that top, you end up losing money. Because if you actually had a reversal candlestick while outside of those Bollinger bands.

Then you would have had a better reason to take a sell trade. Long-term potentially you can lose more money than you make. Because…after you have taken an entry, if price does continue into the same direction the bands will move as price does.

Therefore, giving you a different image of what there was when you actually took the trade you entered. Now, there will also be times it could work out in your favour. But, once again long term you will end up with more losing trades than winners. The same goes for the Stochastic, which has an oversold and overbought area as well. This will be an area between the 20 and the 80 for the oversold and overbought areas. When you look to trade the Stochastic at these oversold and overbought areas.

Very often when you take the trade, very quickly price will continue in the same direction causing you another loss. Once again, take a look at your charts with the Stochastic and look to see when it actually turned over. You can see the indicator change the image you once had for the entry. In other words…as price continues in the same direction, the indicator will move higher or lower as well.

Therefore… creating a number of losing trades within a row. Now, not only can these move with price, but they will also lag behind! Using Forex indicators you are totally relying on the indicator to give you an entry to take a trade.

So by using Forex indicators you are actually taking away the human element to trading. And… as I mentioned earlier on in this lesson, the markets are moved by traders and they are move buy their emotions. I must admit, I fell victim to thinking that following the indicator for an entry was the best way to make a consistent profit. This means stop using those Forex indicators to trade with, and start learning to trade, using a skill that you will have for the rest of your life. Learning to trade in this way, you will then be able to understand why you are taking a trade not just following what a indicator is telling you.

You was taking the entry at an area on the chart into a resistance level. In other words, because you was relying on the indicator with the entry you missed the major area where price was going to reverse at.

Checkout best EV stocks to invest in today. Advertiser Disclosure ×. The common values for the shorter SMA may be 10, 15 or 20 days while the standard values for the longer SMA may be 50, or days. You can get a decent idea what fair value is by looking for price areas on your chart where price seemed to gravitate towards the most. There is a vast array of trading courses available online which you can join to learn trading. If the indicator line does not follow the market price lower it is considered a bearish momentum failure where a reversal higher could be more likely.

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