4 questioms to consider when choosing technical indicators forex trading

4 Questions About Technical Indicators You Should Ask Before Trading

There is no “Holy Grail” indication that will guarantee profits in the forex market, as most technical analysis classes would tell you. That is not to say you should abandon your hunt for the “best” technical indicator that works for you. Remember that you may always combine indicators or change their settings to create a consistently effective approach. The possibilities are endless. But, before you get overwhelmed by all of your possibilities, start by answering the following 4 questions about technical indicators before trading:

Table of Contents

What do you want to use the indicator for?

What is the purpose when using this indicator?

As with other activities, the choice of tool or equipment is dictated by what you want to perform with it. You don’t use a wide camera lens to take pictures or a bread knife to slice steak, do you? 

Moving averages are great for tracking trends. Stochastic or RSI oscillators may be ideal for market peaks and bottoms. If you’re confused, review momentum indicators and oscillators at our School of Pipsology!

Do you know how the indicator works?

do you know how to use it?

Next, in order to properly analyze the signals generated by the technical indicator, you need to understand how it is calculated. 

To comprehend the output, you don’t need to remember the complicated formulae, but it helps to know what sort of data is fed into them (for example, the average of the past X closing prices or the ratio of highs to lows in the preceding X bars).

When does the indicator fail?

how to identify if it fails?

Understanding how the technical indicator operates is insufficient. Awareness of potential failure points is also helpful. Since there is no sign that guarantees success 100% of the time, you need to be aware of situations in the market when it may not perform as well as you’d hoped. 

If you blindly follow crossovers, for instance, you might get caught up in turbulent price movement since moving averages don’t generate trustworthy indications in range bound situations. If you depend on leading indicators with the improper settings, you may be fooled by oscillators that predict reversals too early. Now for the last inquiry…

What settings should you use?

Assuming you’ve already determined the indicator(s) to utilize for your approach, it’s time to choose the appropriate settings. Remember that shorter/lower settings result in more sensitive indicators that create more signals. Longer/higher settings, on the other hand, produce fewer signals and have a latency. 

Where is the ideal setting between this whole range of sensitive and often faulty signals on one end and trailing but more reliable ones on the other? Some argue that the default settings are often the best since they are what most market observers use anyhow. This essentially implies that they have a self-fulfilling impact. However, if you prefer settings that can integrate the most recent market circumstances or have a solid track record with other indicators, backtesting may be the solution.

In Indicator Vault, we have everything you need. With the mission to assist you in bettering your chart analysis and trading abilities, we have developed many indicators to help you trade more pleasant, stress-free (and hopefully profitable) Get Instant Access To The ENTIRE Collection Of ALL Of Our Top-Rated Custom Indicators for Tradingview 

Trust me. It will be worth it

The above is 4 questions about technical indicators you should ask before trading. We’ve also put up the articles 3 Popular Forex Trading Strategies To Trade More Profitably and 3 Easy And Profitable Trading Strategies For Beginners to help you out a little. Check it out now!

Join Indicator Vault, utilize the variety of trading instruments offered, and establish yourself as a market power!

Similar Posts