There is a huge number of different trading strategies on the Internet, but what is for some reason they do not suit you? The solution is to design your own indicator trading system. First, I’d like to define what a trading system is in general.
I suggest using a classical approach, so, let us try to identify the ongoing market trend. To do this, we need any trend indicator that is in the standard indicator list on the trading platform or has been added.
These indicators allow you to hold a trade for quite a time as long as there is the price is trending; they also help you filter off false signals of the trend reversal.
The most popular and most common trend indicators are Moving Averages, Parabolic SAR, Bollinger Bands, Alligator, Standard Deviation, and many others. You can use your favorite trend indicator. There are no restrictions.
There are not always strong clear trends in the market. The market is in the consolidation stage or trading flat most of the time. So, we need another important element in our indicator strategy.
We add an oscillator to our trading system. Oscillators got their name from the verb “to oscillate”, which means “swing back and forth”, “vary”, as these indicators change their value within a given range or relative to a zero level. They include the following indicators: Relative Strength Index, MACD, Stochastic Oscillator, DeMarker, Awesome Oscillator, and others.
Employing oscillators, you can open positions in trading flat, using the overbought/oversold zones. They also allow anticipating the trend reversal by signals of convergence and divergence of the oscillator and the price chart.
But that is not all. Oscillators can also help you enter a trade in the major trend direction during the local corrections so that you can cut the drawdowns when entering new trades.
This step could well be the final one. A trading system should be simple and profitable. Sometimes, you can enrich this indicator list with different information tools indicating spread, trade sessions, time left before the current bar will close, and so on if your trading strategy requires this.
Combine all the indicators and enjoy your easy trading strategy. A good forex strategy for beginners that is quite well-performing and engages low risk is based on two types of trading indicators: oscillator + trend indicator.
This type of forex trading strategy will deliver entry signals irrespective of the market stage (whether it is trending or trading flat). You must study well all the tools you use.
Even in this simple trading algorithm, many beginner traders often make a typical mistake, which should be illustrated. I think the most common mistake is to add too many indicators to the trading chart. Some traders wrongly think that they can better filter the entry or exit signals they discover by adding more and more new tools to the price chart.
Unfortunately, they do not consider the fact that different indicators have different calculation algorithms. This results in the situation when good entry signals are filtered out together with false ones.
The only way to deal with this problem is to study more deeply those tools that you use in the market analysis. You should not just study the main types of signals and properties of the indicators. You also need to study the calculation algorithm and the working principle suggested by the indicator designer.
This will allow you to reach a better understanding of not only how your trading strategy work but how the foreign exchange market operates in general.
Another important flaw is that when there are too many tools attached to the chart, you just can't see the price chart itself. This is especially acute for the traders who apply indicators only to filter the entry/exit signals, they need to see a clear price chart. Continue reading with Litefinance.com...