Forex Trading Strategy - Essential Indicators Six of the Best

If you are devising a Forex trading strategy and using technical analysis you will need some indicators to help you execute your forex trading signals and below, we have outlined six essential indicators that any trader should consider using on their forex charts.

1. Moving Averages

A great back indicator to trend lines for seeing the direction of the trend.

Moving averages should not be used on their own to enter trades but combined with other indictors.

Moving averages in longer term time frames work best and I find the 200 day MA important and also use the 40 day and 18 day MA useful. Never use short term averages as trends need sufficient periods of data to be effective.

2. Bollinger Bands

If you want warnings of trends developing, or a tool to help you sell high volatility to execute trading singnals i.e. open new positions or to lock in profits, then Bollinger bands are ideal.

Like moving averages, this indicator is simply there to show you the opportunity and you should time your entry with other tools.

3. Net Trader Positions

This is simply one of the best tools there is for spotting the big contrary trades and is realized bi-weekly by the CFTC. Although it applies to futures markets, the data can be used for spot currency markets as well.

This tool will help you spit every major trend change in advance.

The reason for this is, it breaks the open interest in speculative and commercial positions.

We don’t have room to explain the full logic here - but in essence speculators are always heavily net long at important market turning points while the commercials ( smart money ) are short.

By looking for divergences in speculative and commercial positions and looking for extremes, you can spot the big turning points coming.

So far we have looked at tools that can alert you to trading opportunities in your forex trading strategy – now, its time to look at some indicators to time entry on your forex charts and we have picked out 3 of the best.

4. Stochastic

George Lane, who developed the indicator, concluded that in an uptrend, prices tend to close near their high, and in a downtrend market, prices tend to close near their low.

This may sound simple, but the stochastic is simply one of the best momentum indicators out there for entering trades and taking profits.

5. Relative strength Index (RSI)

This indictor complements the above indicator perfectly and is another superb indicator to have in your forex trading strategy.

The RSI, as its name implies measures the relative strength of price currently compared to the past and gives you an idea of how strongly a market is trending.

This is one of the most popular momentum indicators in the world and was developed by trading legend, Wells Wilder as is the next indicator

6. Average Directional Movement (ADX)

The ADX is a momentum indicator, which aims to measure the strength of the trend - and attempts to determine if the market is in a trend or not.

The ADX line is a great momentum indicator and will help you trade the strongest trends - and give you advance warning of changes in momentum for profit taking or contrary trades.

So there you have six great technical indicators to incorporate in your forex trading strategy. There are of course others worthy of consideration, but these 6 are the ones I have used for the last 25 years and found them highly effective in my own forex trading systems and think you will to.

Take a look at them and see for yourself – Good trading