Best Indicator For Forex Trading

forex indicators, forex education, trading trainingThe subject of which indicator is best for (blank) can be a real touch point for arguments. Everyone has their favorite indicators and swears by that indicator’s ability to be a crystal ball in forecasting future market moves. But let’s look at the big picture for a few minutes. What moves the markets? Why, traders move the markets. What is the best indicator of what traders are doing? Price action, of course – unless you have the proverbial crystal ball.

Price action patterns, in the form of charts, depict the “footprints of the market”. Trader psychology (emotions such as fear and greed) is represented by the patterns on the charts. As I said, traders move the market, so, by extension, fear and greed (and to some degree – other emotions) move the market.

But what about Fibonacci, moving average, MACD, Parabolic SAR, fill-in-the-blank indicators? Well, most of them are historical in nature. As trading trainers will tell you, most indicators are “lagging”. The indicators don’t tell you what’s happening right now.They tell you what has happened in the past. But that doesn’t make them useless. If you know what’s been happening you can use that information to give you an idea of what may happen in the future. I’m sure you’ve heard many times that “past performance does not guarantee future success” or some such disclaimer. And, any trader that’s been around the block a few times, knows that the market is fickle and some characteristic that made you profitable for a period of time, can suddenly stop being profitable (I can attest to that with numerous strategies.)

But if we can’t look at the past to help project the future then how can we decide what, where and how much to trade? Obviously, historical price data is the only way we can make such decisions. But we have to be judicious in our how we interpret historical data. In my humble opinion, there is no single indicator that can “predict” the market’s direction. A combination of indicators seems more prudent. Here’s a suggestion, use price action patterns in conjunction with an indicator or two to help you in your trading. For my part, I like to use price action patterns – trending patterns (trend lines), reversal patterns (123 reversals, head and shoulders), consolidation patterns (supply and demand zones, triangles, flags), breaks of significant historical levels (places where price action has stalled in the past), etc. – along with a few moving averages and Fibonacci retracements to identify potential trades and select targets and stop losses.

In conclusion – again in my humble opinion, there isn’t a single indicator that is the “best” under any particular market conditions, but a combination of indicators that includes price action would be the best. Just remember that not every trade is a winner, so your best tool is risk management.

The following two tabs change content below.
Winners Edge Trading was founded in 2009 and is working to create the most current and useful Forex information and training available on the internet.

Winner’s Edge Trading, as seen on:

Winner's Edge Trading in the news