By James Woolley – The whole subject of technical analysis can be quite daunting for anyone new to forex trading. However most of the indicators are fairly easy to use once you get the hang of them, and with that in mind I want to talk about some of the technical indicators that are ideal for beginners.
At the end of the day the whole purpose of indicators is to help you come up with plenty of winning trades, and more specifically trades where the odds are firmly stacked in your favour. They aren’t essential of course because if you wanted to you could simply look at price action and focus on things like fibonacci levels, pivot points, etc, in order to trade areas of support and resistance.
However your chances of success will improve greatly if you incorporate one or two other indicators into your trading. One of the most reliable indicators you can use is the MACD indicator. When you get crossovers on the MACD, it is often a good indication that a new trend is emerging. Furthermore if you get divergence on this indicator (which is where, for instance, the price is making new highs but the MACD is failing to make new highs) it will suggest that the latest trend is running out of momentum.
Another good indicator to use is the ADX indicator because this tells you the strength of the current price trend. If it is below 20 it is basically telling you that there is no trend present at the moment, or if there is it’s a very weak trend. Anything above 20, and certainly above 25, suggests that the price is trending strongly, with the higher the reading the stronger the trend.
You may also like to use oscillating indicators such as RSI and Stochastics. These will tell you when the price is price is at extreme highs and lows (above 70 or 80 and below 30 or 20 respectively), and therefore likely to reverse. Finally you may also like to use moving averages to help you find winning positions. I like to use exponential moving averages and you can get some excellent signals when the EMA(5) crosses through the EMA(20) on the longer term charts.
It is of course entirely up to you which indicators you decide to use. I should point out that your chances of success don’t improve simply by adding more and more indicators to your charts. You are best off by using a small handful of indicators because these are often more than enough to provide you with lots of high probability set-ups.
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