Forex Trading - What Are The Best Technical Indicators To Use?

by James Woolley

Most people who trade the forex markets use technical analysis to help them decide when to enter and exit positions. Indeed without this facility, many traders would be completely clueless. So which indicators are most effective, and which ones do the professional traders use?

Well the short answer is that there is no combination of technical indicators that is better than all the others. The fact is that the holy grail of trading simply does not exist. No system will generate profits all of the time, whichever technical indicators it uses.

The key to successful trading is to devise a system that is able to generate trading positions that place the odds significantly in your favour so that in the long run you make more money than you lose. Technical indicators are just a tool to help you achieve this objective.

Now you may think that the more technical indicators you use, the greater your chances of success, but this is definitely not the case. You will often find that the more indicators you use, the more confused you will get because there will always be some indicators that give conflicting signals.

I used to load my charts with indicators when I first started out, but found that ultimately it just confused matters and often led to me not taking any positions at all. Also several of these indicators will just tell you the same thing anyway, so you're better off just sticking to a couple of indicators at most.

Indeed many professional forex traders either just trade price action alone or they use basic tools such as support and resistance lines and fibonacci analysis. They leave all the common technical indicators such as RSI, MACD and Stochastics to the amateur traders.

I myself used to use lots of technical indicators but now I simply identify the trend on the daily chart and then use exponential moving averages to enter positions on the 4 hour charts. I've tried adding other indicators but I always found that they weren't needed because most of the time they would put me off a perfectly good trade, rather than back it up.

So my own advice would be to minimise the number of technical indicators you have on your charts because they simply aren't needed. The most profitable systems are often the most basic ones, and providing you apply sound money management rules (cutting your losses early and letting your winners run), then even the most basic of systems can be made profitable.


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