How To Use The Best Technical Indicators For Day Trading
Day trading in foreign exchange market is the process of buying and selling of currencies with the goal of making a profit from the difference between the buying and selling price within the same day. While technical indicators can be defined as tools used for the prediction of future price movement of currencies. There are lots of day trading technical indicators. Examples are Moving Averages, Bollinger Bands, Bull/Bear Ratio, Candlestick Charts, Relative Strength Index, indicators based on Dow Theory or Elliot Wave Theory, Fibonacci Levels, MACD, TRIX, Weighted Close, Williams's %R indicator and many more. Although these technical indicators can be used in forex trading,however, you need to slightly modify them inorder to make profiatble trades.
Most Day trading technical indicators has three functions–to alert you of a signal, to confirm a signal and to predict price movement. This way, a trader can never miss a trading opportunity or run into loss if he or she can use the indicators in the proper way. The way to use these indicators profitably is to develop a strategy using more than one indicator at a time. For example, a combination of MACD and Williams %R indicators can help you place trades successfully.
The MACD (Moving Average Convergence Divergence) is a trend following indicator which measures the relationship between two exponential moving averages of prices. The MACD takes the difference between the 26-period and the 12-period EMAs and plots it on a chart as the "MACD line." Then the nine-period EMA of the MACD itself is plotted on the same chart as the "signal line." When the signal line rises above the MACD line a buy signal is generated and when the signal line falls below the MACD line, a sell signal is created.
The Relative Strength Index (RSI) is a popular overbought and oversold indicator which compares the magnitude of the gains to the magnitude of the losses experienced by a given currency over a chosen time period. From that data, a number ranging between 0 and 100 is generated. If the RSI rises above 70, then a sell signal is given. If the RSI falls below 30, then a buy signal is created.
The Moving Average is another popular indicator used by traders to show the direction of the trend. The most common are the simple 200day ma, 100day ma, 50day ma, 35day ma and 21day ma. But don't forget, they are only valid on daily graphs. According to the experts, a signal can be considered to be good when the 50day ma is crossed by the 13day ma.
Finally, if you are a forex trader using very short time frames, you can improve your success rate by experimenting and back-testing using different settings.
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Created by David Lambert, the CCI was first used as an indicator for determining reversal points in the Commodities Markets. It was then discovered to be very useful in the share and forex markets. It is based on the theory that all activities move under the influence of cycles. The Maxima (+100) and the Minima (-100) occurring at regular intervals. The CCI measures the speed of price fluxuations as determined by oscillators.
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