Forex Trading System: Choosing An Indicator

Over the last decade ther has been great opportunity for forex traders. It’s became very easy to set yourself up as an independent trader via technical indicators from a charting platform such as Metatrader or Ninjatrader.

A decade or so later the trader has to face the problem of too much information. Which forex indicator should he use? Which type of market does he want to identify; trend or range bound? With thousands of indicators to choose from it becomes a difficult choice to make.

I think the key to getting the right forex indicator is to keep it as simple. Don’t over complicate your trading.

It is best to use two indicators; one to identify the trend and one to get you into a trade. They can be similar albeit set to different lengths or periods. Try and avoid indicators which have many lines, indicators which are too fast or too slow and most importantly, indicators which repaint.

I tend to like paint bar indicators. They paint the bar or candle a certain color when they are in a buy signal and a different color when they are in a sell signal. Things like Heiken Ashi MA indicators, TTM trend, or nonlagdots are all great indicators. Then you have momentum indicators like BBsqueeze, ultra trend and fisher transform. These are great trending indicators which you can use to decide which direction you will trade in.

I try not to use indicators to get me out of positions as I find you will either get stopped out for a loss or a profit much slower than if you just used price action. However, if you want to use a indicator to create your stop in your forex trading system then I would suggest something like metatrader’s Supertrend indicator. It really is one of the better stop indicators around.

When you’ve decided which indicators are going into your trading system then you just have to stick to your trading plan. Such things like; trading only in direction of your trend indicator will help keep you on the rights side of the market, trading with a stop (will help protect your trading capital); not entering on forex data releases will all go towards forming strong foundations for a great trading system.

Now you must get on with testing, backwards and forwards, your trading system and making adjustments to your settings. If you need to make drastic changes then I would suggest that accept that that trading idea/concept didn’t work and move on and try something else.

You can download Metatrader Indicators for free on our website where you can also find Forex trading systems and information on how to create a forex system to suit your trading.

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