Countless of indicators are being released every day, claiming to give you the trading edge and provide endless profits. However, usually it is the traditional indicators that were developed 60 years ago that provide the best signals. In this article we will describe several traditional indicators that still prove to be profitable, decades after their introduction.
Relative Strength Index
The Relative Strength Index Indicator or the RSI, was developed by Welles Wilder and is considered the finest overbought oversold oscillator in the market today. It compares the average gains and average losses of last 14 periods to give traders a objective answer to the question: is price overbought or oversold. Readings below 30 indicate oversold and readings above 70 indicate that price is overbought and may reverse downwards soon.
We enter short trades when the RSI crosses 70 from above, and enter long trades when the RSI crosses 30 from above, to catch the reversal at its beginning when the risk is the lowest and reward is highest.
Bollinger Bands
The Bollinger Bands is an indicator developed by John Bollinger that is mainly used to show the volatility of a certain Forex pair. It consists of three bands: upper band, lower band, and a middle band when is essential a 20-period simple moving average. The wider the bands, the more volatile the Forex pair is, and the tighter they are, the less volatile the pair is.
The upper and lower bands can be used as dynamic support and resistance levels: when price hits the lower band and bounces traders can enter a long trade, and when it hits the upper band traders may sell. Make sure to confirm such trades when price-action (actual supportresistance levels in place) for maximum accuracy and win rate.
Commodity Channel Index
Commodity Channel Index or the CCI is another overboughtoversold oscillator that was developed a few decades ago and is still used frequently. Some traders use it in a more sophisticated system called Woodies CCI – a special system that looks for patterns in the CCI readings.
An accurate trading method for the CCI is the zero-line-bounce: trades are entered when the CCI hits the zero-level and bounces in the previous direction – it is a trend-following approach that enters at the retracement and offers traders accurate trades.
In conclusion, these indicators can be quite profitable and accurate when used correctly, and they profit on any Forex pair or stock.
