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When the ADX has lost the bullish trend and becomes invalid by falling below 30, it means the market is in range. In a sideways market, we can get clues from trendlines and the Bollinger Band rejections as well as from RSI breaking the momentum boundaries, which is either 70 or 30 in this case. The Bollinger Band indicator provides information regarding the trend direction, while the Stochastic gives prediction on the trend strength. Considering that the Bollinger Band is a lagging indicator that follows the candlestick pattern , we should always read the signal from this indicator with caution.
That's why the Bollinger Band indicator should be combined with one or two other indicators to complement the trend signal, for example by using the Stochastic. As a momentum indicator that has the characteristic of an oscillator, Stochastic is a leading indicator that provides information when the market is overbought or oversold.
Using the combination of Bollinger Band and Stochastic, we can enter a position if the conditions below are met:. At the same time, the Stochastic made a crossover below the oversold area. In this situation, the price was inclined to make a bullish reversal and so we can use this opportunity to enter a long position. This is another combination we can put into use. The MACD is an indicator that shows the trend direction and market momentum, while the RSI provides an entry signal through the oversold and overbought levels.
A positive histogram indicates an uptrend is ongoing, while a negative histogram signals an ongoing downtrend. Even though we can execute a trade based on the MACD alone, it is better to complement this indicator with the RSI indicator to provide more reliability on the entry signal. Like the Stochastic, the RSI also helps determine overbought and oversold conditions, as well as accurate entry points.
From the chart above, the RSI moved into the oversold area and gave a buy signal. These two indicators complemented each other, thus we could enter a buy order confidently. From the five combinations above, you probably have noticed that we use both the RSI and Stochastic to identify momentum.
Despite belonging from the same category, we should apply either indicator based on the market environment. The RSI oscillates between 0 and An RSI above 70 indicates a possibility of overbought condition, while an RSI below 30 indicates a possibility of oversold condition.
That said, the price doesn't necessarily make a reversal if the RSI hits extreme levels. Generally, traders will use an RSI of 50 as a signal for an ongoing trend. On the other hand, Stochastic works better when it comes to identifying price reversal. Although it oscillates between 0 and just like RSI, the Stochastic uses as the signal.
A Stochastic above 80 indicates an overbought condition, thus signaling a potential bearish reversal. Likewise, a Stochastic below 20 signals an oversold condition, thus signaling a bullish reversal. The Stochastic will also remain at its extreme level overbought or oversold even when the market is trending.
This is because the price is always closed near its highest level for uptrend or its lowest level for downtrend. From the chart above, we can say that RSI is more accurate in a trending market compared to Stochastic , provided that we only use 50 as the signal for trend direction while ignoring its function to identify overbought and oversold conditions.
Stochastic, on the other hand, is more accurate in a sideways market. The RSI is also best applied to shorter time frames in order to measure the velocity of price change and short-term trend. Meanwhile, Stochastic is usually implemented by swing traders to identify mid to long-term momentum.
The best forex indicator combination constitutes indicators that are complementary to one another. Using two indicators that have the same function and purpose is redundant; it does not mean that the signal is stronger for you to enter the market. Therefore, a combination with one indicator from each category is the way to go. It provides you with different perspectives from the same price movement, so you can see whether a trade is possible. What matters most is to don't test indicator combinations in a real account.
Instead, use a forex demo account to see how they work so you don't risk any real money for your strategy testings. A freelance writer who has been regularly writing for BrokerXplorer since With my articles, I wish to provide forex traders with educational topics to learn from.
I do nothing in the meantime. They are aware of trading psychology their own feelings and the mass psychology of the markets. Losers get high from the action; the pros look for the best odds. The most important thing in making money is not letting your losses get out of hand. If you can follow these three rules, you may have a chance. If you don't bet, you can't win. If you lose all your chips, you can't bet. If intelligence were the key, there would be a lot more people making money trading.
They are taking 5 to 10 percent risk, on a trade they should be taking 1 to 2 percent risk on. Not finding what you're looking for in this page? Or go to one of our top sections if you need any suggestion. Trading with one technical indicator is okay, but trading with a combination of indicators is better. The question is, how to combine forex indicators the right way?
Final Words. Give Your Comment Here. More Articles on Technical Analysis. Do Professional Traders Rely on Indicators? Beginner's Guide to Head and Shoulders Pattern. Which Indicator is Best for Minute Chart? How to Deal with Repainting Indicators. Exness Secures Operating License in Kenya. Top Forex Indicators. Jim Rogers. Paul Tudor Jones. Warren Buffet. Nicolas Darvas.
Warren Buffett. Peter Bernstein. Mark Douglas. Jack Schwager. Alexander Elder. Money is secondary. Bruce Kovner. Michael Marcus. New traders will often ask which is better, fundamental or technical analysis? But even the best technical traders consider fundamentals to some degree and fundamental traders obviously have to look at a chart before taking an entry. The best traders consider all the information available to them and use this information to execute trades with confidence.
Proprietary indicators are of interest here as they are not always based on OHLC data, so can be much more useful in confirming a signal from a standard indicator. Another reason proprietary indicators are useful is they can eliminate subjective elements of price action analysis. For example our Auto Trendlines indicator which draws trendlines for you based on a consistent criteria.
In the above example we have a period Hull moving average, combined with three of our proprietary indicators for MT4 — Auto Trend Channels , Support and Resistance and Sentiment Lite. Although the final Hull sell signal is quite good in isolation, similar to our original example with RSI, it has not issued a take profit signal yet, despite a significant decline and modest bounce.
Sentiment is also neutral on this particular occasion, giving us no clues as to whether or not we should take profits. Our price action indicators on the other hand really do the job — they suggested two prime selling opportunities before the Hull even started falling and the decline into the channel floor is the perfect time to take profit. Note that the Hull is not redundant here either: after we short the reaction from the channel top and resistance zone, it confirms the trend has indeed turned lower, and then acts as a backup exit plan if we fail to take profits at the lows.
Combining proprietary indicators with more traditional ones in this manner opens up a whole world of possibilities for improving your trading strategies and getting the best results from your forex trading. Related Articles. What's Next?
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are the best combination of technical indicators for intraday trading. The best technical indicator for day trading is the volume-weighted average price VWAP which represents the mean price based on both volume and price. ketor.xyz › indicator-combinations-in-forex-trading. 1. Chapter 9 – Winning Combinations for Trading Strategies ; 2. Combining Indicators ; 3. Moving Average + Stochastic ; 4. Bollinger Bands + Stochastic ; 5. MACD +.