How to Combine Forex Indicators to come up with a Trading Strategy
Best Combination of Forex Indicators
To come up with the best forex indicator combination for your forex trading strategy you will need to know about the various different types of forex indicators and know how you can combine these indicators to create a forex trading strategy.
Forex technical indicators are used identify forex price trends, analyze momentum of forex price trends so as to try and predict the next likely forex market price movement direction.
Because each forex indicator calculates and interprets forex price moves differently using different methods of calculation forex traders will usually combine two or three forex technical indicators so as to come up with a forex trading strategy that uses a number of different calculation techniques from different forex technical indicators so as to generate forex trading signals not from only one forex technical indicator but from 2 or 3 forex technical indicators & using this strategy a trader will only open a forex trade once all the forex indicators give a forex signal in same direction.
A good forex technical indicator combination should include different forex indicators based on the following types of forex indicators:
Forex Trend Following Indicators
Forex trend indicators are used to determine if a forex instrument is moving within a forex trend or not & also to figure out the direction of the trend.
Trend Following Indicators Examples: Forex Trend-Lines, Moving Averages, Bollinger Bands technical indicators
Momentum Indicators
Forex momentum indicators are used to determine momentum of the current forex trend - these momentum forex indicators are used by traders to analyze the strength of the current forex trend so as to determine if a trader should open a forex trade or not based on the momentum of the current forex trend.
Momentum Indicators Examples: RSI, ADX, MACD technical indicators
Based on these two forex indicator categories a trader can come up with a forex indicator based forex trading strategy that will have the following forex indicators:
Moving Averages FX TradingTrading Indicator RSI MACD
By using different forex indicators forex traders will get different information about the forex price movement and thus forex trading signals generated using this method will have better information about forex price trading signals because the forex indicators used do not analyze forex price in the same manner and instead the technical indicators used analyze forex price information differently and therefore using this forex trading strategy generates forex trading signals using a combination of different forex indicators that use different forex price information to generate forex signals.
For the above forex indicator based forex trading strategy the Moving averages will be used to define and identify the forex trend while the RSI and MACD indicators will be used to determine the strength of the current forex trend.
If all the three forex indicators give a forex trading signal in the same direction then a trader can open a forex trade base on the direction of the trend and the momentum of the forex trend.
For example a buy signal and a sell signal can be generated when
Buy Forex Signal
- Moving Average indicator is moving upward
- RSI indicator value is above 50 center-line mark
- MACD indicator is above the zero center line mark
Sell Forex Signal
- Moving Average indicator is heading downward
- RSI indicator value is below 50 center-line mark
- MACD indicator is below the zero center line mark
How to Combine Forex Indicators to come up with a Trading Strategy
