Most traders often focus on indicators in trading. Of course this is not wrong, but some even really rely on trading systems only on indicators. In fact, not infrequently, many are “addicted” to using many indicators that cover the chart screen itself.
The use of indicators is common for traders. Very rarely the traders only use Price Action or naked chart without any indicator, because it requires skill and flight hours to see candlestick patterns or understand the price action that exists. Therefore, the presence of indicators is one way to make it easier for traders to be able to understand and analyze existing markets or charts.
Indicators in the forex market are generally derived from the same indicators used in the stock market. Why? Because the forex market has only been formed on a large scale since 1971 after Bretton Woods Agreemnet was ended unilaterally by the United States. While the stock market has long been formed since the 19th century. In fact, the candlestick that is now commonly used is originating from Japan, which was used to see fluctuations in rice prices on the market.
Because of its very useful nature, indicators then become “friends” for traders around the world. Analysts ranging from small traders to large corporations of the world also use indicators in their evaluations. Then, how to use and use good indicators? Here are some tips that can be used for indicator users to be effective in trading.
- Choose 1 leading indicator and 1 lagging indicator. What is a leading indicator? Leading indicators are indicators that move and show the possibility of the future, for example Stochastic Oscillators and RSI. While the lagging indicator is the opposite, which records the history of movements without being able to show possible directions. An example is Moving Average (MA).
- Combine between the leading indicator and lagging indicator at the appropriate timeframe. The greater time will produce a more valid signal. Chart view is basically a collection of data, so that the bigger the timeframe the more data is stored and the more valid the test is.
- Remember Paretto’s Law, that you should use enough resources to get something bigger. Or the 80:20 law, where to get 80 is enough with a capital of 20. In this case, select 2 or 3 indicators to get the maximum trading results.
- Do not change the indicator too fast. Very often traders feel that they don’t match the installed indicator because it results in a loss. Keep in mind that indicators are only tools. How to use the tool depends on who uses the tool.
- Evaluate the trading system once a week. Note what trading weaknesses we do. Count the number of times the indicator gives the wrong signal and check also the cause. If it comes from news or fundamental factors, then we should always be vigilant.
- Choose indicators that appropriate and in accordance with the trading system that we have. There are hundreds of types of indicators available by default on each MT4 and thousands of others out there.
- Do not be interested in the lure that by using certain indicators can generate large profits. Basically, indicators including custom indicators are nothing more than tools.
Using indicators such as looking at the dashboard panel on our vehicle. Indicators can only provide directions and possible directions and other information for driving, stopping, turning and so on. Everything returned to the user of the indicator, whether to use the information provided or not.