How to Apply Forex Trading Indicators

A key to becoming a successful forex trader is learning how to apply the various forex trading indicators available at your disposal. Although forex trading is mainly a speculative venture, learning how to apply the various indicators available can greatly enhance your chances of making good returns and minimizing your losses in this potentially lucrative and at the same time very risky business.

Instructions

1. Familiarize yourself thoroughly with the two types of indicators available in forex trading. These are the leading indicators and the lagging indicators. The leading indicators indicate a buy signal before the new trend or reversal occurs. Conversely, a lagging indicator gives a signal after the trend has changed.Leading indicators are also known as oscillators and include tools like the MACD, the Ultimate Oscillator. Lagging indicators are also known as momentum oscillators and include the moving averages and the Bollinger bands.

2. Develop a trading plan. A trading plan is essential because it enables you to remain consistent in your trading. It stops you from making irrational decisions which are occasioned by factors such as emotions and market sentiments rather than based on fundamentals. A good trading plan needs to take in to consideration the type of market you will be trading in. This is because different indicators give varied results in different market type

3. Research which indicators work best within each market. This is best done on a practice account. Although leading indicators might seem like the best choice since they indicate a trend change before it occurs, leading indicators are highly inaccurate in a market with wide fluctuations. In such markets with wide fluctuations and no apparent trend, the lagging indicators are more useful

4. Try out a combination of indicators. This is important because various indicators will give you varying results. Trying out a combination of indicators will enable you to come up with those that give consistent results based on the trend prevailing in the market

5. Repeat Step #3 a number of times so that you can ascertain with better certainty that your combination of indicators will give you the same desired result.

Tips & Warnings

• Do not use leading indicators in a sideways market – a market without any particular trend or pattern

• Do not use lagging indicators to predict a trending market – a market showing a particular pattern.