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Yes, Give it to me

The Best Forex Indicators For Serious Traders 

 January 11, 2018

By  Rayner

I know what you’re looking for.

The best Forex indicator that tells you when to buy & sell so your trading account can spit out money like an ATM (day after day).

Unfortunately, it doesn’t exist.

If it does, won’t we all be millionaires trading off a beach in Hawaii?

Now…

Even though there is no such thing as a best Forex indicator, there are indicators that work in different market conditions.

And if used correctly, it helps increase your winning rate and profit potential.

So here’s what you’ll learn today:

Are you excited?

Then let’s begin!

The best Forex indicator: The magic of Moving Averages

The moving average is an indicator that “smooth out” past prices on your charts.

But…

Don’t waste your time deciding whether you should use a simple, exponential, weighted, or linear moving average. Or whether you should use a short term or long term moving average.

It doesn’t matter — because there’s no such thing as the best moving average.

Instead, learn how moving average can fit your trading plan and help you make better trading decisions.

And here are 2 things it can help you with:

  • How to use the moving average to trade with the trend
  • How to use the moving average to ride massive trends

Let me explain…

How to use moving average and increase your winning rate

I’m sure you’ve heard this a gazillion time…

“The trend is your friend.”

But the question is, how do you define the trend?

Well, there are many ways to do it. But my personal approach is to use the moving average (MA) to define the long-term trend.

Here’s how to do it:

If the price is above the 200MA, then look to go long. And if the price is below the 200MA, then look to short.

An example:

Now you’re probably wondering:

“Is the 200MA the best?”

Here’s the thing… there’s no best moving average out there. I use the 200MA because it’s a summary of what the price has done over the last 200 candles.

But, if you want to define a shorter or medium-term trend, then adjust the parameter accordingly.

How to use the moving average to ride massive trends and improve your risk to reward

Here’s the thing:

If you want to ride big trends, you cannot have a profit target because it puts a limit on your profit potential.

So, what should you do?

You set a trailing stop loss.

This means as the market moves in your favor, you adjust your stop loss in the direction of the trend.

And one way to do this is to use the moving average indicator to set your trailing stop loss.

For example:

If you want to trail your stop loss using the 50MA, then you only exit your trade if the market closes beyond it.

Here’s what I mean…

Now…

If you want to ride a short-term trend, you can trail with a short-term moving average like the 20MA. Or, if you want to ride a long-term trend, you can trail with the 200MA.

The best Forex indicator: The simplicity of Stochastic

The Stochastic is a momentum indicator created by George Lane.

Here’s what he said…

“Stochastics measures the momentum of price. If you visualize a rocket going up in the air – before it can turn down, it must slow down. Momentum always changes direction before price.” — George Lane

In other words, the Stochastic indicator tracks the momentum of price. It identifies when the price is gaining or losing momentum.

But here’s the thing:

Most traders are using Stochastic indicator the wrong way. They go long when the price is oversold, and go short when the price is overbought.

If you ask me, this is one of the fastest ways to lose your money.

You’re probably wondering:

“So how should I use the Stochastic indicator?”

Well, here’s my secret…

How to use Stochastic and find low risk and high reward trading setups

  1. Trade in the direction of the long-term uptrend
  2. Wait for the price to reach oversold levels on Stochastic
  3. Wait for an entry trigger to get long

And vice versa for a downtrend.

An example…

The best Forex indicator: The awesomeness of the Average True Range

The Average True Range (ATR) is an indicator that measures the volatility of the market.

When the ATR has a low value, it means the market has low volatility and vice versa.

So the question is:

How do you use the ATR indicator in your trading?

Well, here are 2 techniques you can consider:

  • How to use the ATR indicator to set a proper stop loss you don’t get stopped out unnecessarily
  • How to use the ATR indicator to find high probability breakout trades

Let me explain…

How to use the ATR indicator to set a proper stop loss you don’t get stopped out unnecessarily

In my opinion:

One of the worst ways to place your stop loss is just below the lows of Support, or above the highs of Resistance.

Why?

It gets stop hunted easily because the market tends to trade beyond these levels by a few pips before reversing its direction.

An example:

So…

A solution is to use the ATR indicator and give you stop loss a buffer away from Support/Resistance.

Here’s how to do it if you have a short setup:

  1. Determine the ATR value
  2. Add the ATR above the highs of Resistance

Here’s an example:

Now, if you want to give your trade more “room to breathe” you can multiply the ATR value by 2, 3, or 4.

How to use the ATR indicator to find high probability breakout trades

Here’s a fact:

The market moves from low volatility to high volatility and back to low volatility.

Here’s what I mean:

best forex indicator - low to high volatility

So…

If you want to find high probability breakout trades, be alert when the market is in low volatility period — there’s a good chance it’ll break out.

Here’s how to do it:

  1. Wait for the ATR value to approach the lows
  2. Check if the market is in a range
  3. If the price breaks out of the range, you can expect momentum to continue

An example:

best forex indicator - multi year low volatility

And if you want to trade the breakout, you can enter your trade when the price closes beyond the range.

This is powerful stuff, right?

MACD Indicator Secrets

The Moving Average Convergence Divergence (MACD) indicator is a momentum and Trend Following indicator.

It has 3-parts to it: MACD line, Signal line, and MACD Histogram.

For this article, we’ll focus on the MACD histogram and here are 2 powerful techniques you can use…

1. How to use MACD Histogram and identify momentum reversal

Here’s how it works…

  1. Wait for the price to come into Market Structure (like SR, Trendline, etc.)
  2. MACD Histogram shows a strong momentum (you want to see a high peak/trough)
  3. Wait for price rejection before trading in the opposite direction

Here’s an example:

Next…

2.MACD Histogram Squeeze: How to identify explosive breakouts about to occur

Here’s a fact:

Explosive breakouts usually occur when there’s low volatility in the market — you’ll notice the range of the candles gets small and “tight”.

But if you’re a new trader, this might not be easy to spot.

So, that’s when the MACD Histogram can help you.

Here’s how…

The price comes into key Market Structure (like SRTrendline, etc.)

The MACD Histogram looks almost “flat” without any visible peak/trough

Enter the breakout when the price breaks the Market Structure

Here are a few examples:

Forex Indicators

This is powerful stuff, right?

The best Forex session indicator

If you trade forex, then you know there are 3 main sessions to it — Asian, European, and New York.

To make things worse, you have daylight savings which shift back the European and New York Session by an hour (during a certain period of the year).

And if you’re a short-term trader, you don’t want to miss the period when the European and New York sessions overlap one another as the market tends to be the most volatile.

Now you’re probably wondering:

“How do I keep track of the different time zones and trading sessions?”

Well, I’ve got good news for you because there’s an indicator called “Forex Sessions” by Chris Moody (available for free on TradingView).

Here’s how to add the indicator to your charts:

  1. Select the indicator tab
  2. Search the indicator called “Forex Session” by Chris Moody
  3. Add the indicator to your charts

Here are the settings I used:

Then you should see something like this:

Here’s what it means…

Beige background – The Asian session

Blue background – The European session

White background – The New York session

Beige solid line – Opening hour of the Asian session

Blue solid line – Opening hour of the European session

Dark blue solid line – Opening hour of New York session

Now if you want to learn how to use this indicator, then go watch this training video below…

Now you’re probably wondering:

“What use is the Forex Session indicator?”

That’s a good question.

And here are 2 ways it can help your trading:

  • You understand your currency pair intimately and can identify “hidden” opportunities
  • You can backtest intraday trading strategies with ease

Let me explain…

You understand your currency pair intimately and can identify “hidden” opportunities

Here’s a fact:

If you spend a lot of time watching a market, you’ll start understanding the intricacies of it.

For example:

  • How it reacts before a news release
  • How it reacts after a news release
  • How it behaves during the Asian session
  • How it behaves during the European session
  • How it behaves during the New York session
  • What is the average daily range
  • And etc.

This is a goldmine because you can identify “hidden” opportunities that aren’t privy to other traders.

And with the Forex Session indicator, it makes things easier for you because it highlights the respective trading session on the charts.

Here’s a simplified example…

Forex Indicators

As you can see…

Over the last 5 trading sessions, USD/CAD is the most volatile during the European session.

So if you’re a day trader, then you want to find trading opportunities near the start of European session to take advantage of the “big move”.

Also…

You’ll realize that different markets “behave” differently and it’s your job to know your markets intimately.

You can backtest discretionary intraday trading strategies with ease

The Forex Session indicator makes it easy for traders to manually backtest intraday trading strategies.

Here’s what I mean:

Previously, if you want to backtest a “London Breakout” strategy, you must scroll your charts to the London open and manually record your results.

If you’ve done it before, you know it’s time-consuming to find the exact location on the chart where London opens.

You’ve got to manually move your mouse to each candle and check if you’ve got the correct candle for London open.

Sucks right?

But the good news is…

You can just switch on the Forex Session indicator and find the blue vertical line on your chart because that’s the candle of London open.

Imagine how much time you’ll save without ever “hunting” for the London open candle ever again.

Now, let’s move on…

How to combine different Forex indicators the correct way

The purpose of trading indicators is to summarize the historical chart data so you can better interpret the “behavior” of the markets.

And if you want to take things a step further, you can combine different Forex indicators and get better trading results.

But if your charts look like this:

Forex Indicators

You’re obviously doing it wrong.

So…

Here are 2 rules to follow when combining different forex indicators…

  1. Every trading indicator on your charts must have a purpose
  2. You only need one indicator for each purpose

Let me explain…

1. Every trading indicator on your charts must have a purpose

You’re probably wondering:

“What do you mean by purpose?”

Well, it means what the trading indicator is used for.

For example:

  • Is it used to define a trend?
  • Identify the market’s volatility?
  • Define an area of value?
  • Act as an entry trigger?
  • Set a stop loss?

2. You only need one indicator for each purpose

Let’s say you want to define the trend using a moving average indicator — that’s fine.

But, you shouldn’t throw in ADX, Bollinger Bands, channels, and etc. to define the trend.

Because you’ve got your moving average and that’s all you need, period.

So, remove all the unnecessary indicators on your chart and leave those that serve a purpose.

Does it make sense?

Great!

Frequently asked questions

#1: Is the 200MA less important when focusing on shorter-term trends?

The 200MA is useful to understand the longer-term trend. So if you’re only focusing on the shorter-term trends, then the 200MA would be less important.

#2: I was trading the 5-minute, 15-minute and 1-hour timeframes but my stops were hitting frequently at 1ATR before moving in my favour. Does price action work on lower timeframes too? Or should I only trade in higher timeframes like 4-hour or the daily?

If your stops keep getting hit often, then you might consider widening your stops with 2ATR or 3ATR.

Yes, price action can work on the lower timeframe if there’s sufficient liquidity in the markets.

But I can’t really say if you should or shouldn’t trade the 4-hour and the daily timeframes, because it depends on your goals from trading, whether you want to be a day trader or position trader, etc.

Conclusion

Here’s the deal:

There is no such thing as the best Forex indicator — it’s a fantasy.

However, certain indicators work best in different market conditions.

For example, you’ve learned:

  • How to use the Moving Average indicator to improve your winning rate
  • How to use the Stochastic indicator to find high probability trading setups
  • How to use the Average True Range indicator to set a proper stop so you don’t get stopped out unnecessarily
  • Which is the best Forex session indicator for short-term traders
  • How to combine different Forex trading indicators and improve your trading results

Now I’m curious…

Which is the best forex indicator that helps your trading?

Leave a comment below and let me know your thoughts.

  • Hi,
    I use pivots, 20,50,100 and 200EMAs, RSI Fibonacci retracements and extensions and Bollinger bands.
    You told me once, you don’t use bollingers; I’d like to know why?
    Angela

  • Ray, Your comments are incredibly insightful. If i focus on shorter term Swing Trades, and my RSI and Stochastics have been adjusted for shorter periods, would you use a shorter term MA as your trend guide?? ex. My avg holding period is 1 -5 days. Should i use a 50 dma as my “big directional guide , and use the 20d as a sell signal? I know you value the 200d as the key direction so i think the question is —would you NOT take the 200 into account when focused on much shorter time horizons?

    Thank you, Kevin

    • Hi Kevin

      I would use the 200MA the same even in the lower timeframe.

      The 200ma on the 5mins timeframe is essentially 16.67ma on the 1-hour timeframe.

      The concept is what matters. If you want to trade short-term trend for a given timeframe, use a shorter term MA.

      The moving average should not be dictated by the timeframe you’re trading, but the type of trend, or trades, you want to execute.

  • Rayner, this post was extremely informative. Thank you. I’m feeling Chris’s Forex Session indicator. Is there a similar one to Chris’s out there for MT4? I also use MA to determine short to long term trends and for Stop Losses too. Keep up the great work you are doing. Much appreciated.

  • Your notes on the indicators such as moving average, atr, etc., are really very, very good.

    Recently, not more than 1 month ago, I found another use of indicators by Joe Dinapoli. He used displaced moving average, and fibonacci. I am still in the process of learning and digestion. Perhaps you have heard of his name and if possible, explain some of the use of his indicators.

    Thank you for your time, and generosity.

  • Hi Rayner, thanks for your continues support and advice/tips. Some time ago you advice that “let the price come to you” before and ENTRY, as for me the best method that suits this statement of yours is “Support/Resistance. I’m using this method for sometime already and it really works for me. …….but we need to be very patience if we use this method.
    Thanks again Rayner.

    R.Velmu.

  • SMA1fx…hai rayner i use only SMA1 shift -26 its same as chikou span ichimoku & line chart and here i can see SBR ,RBS , hi & lo, from sma1 and a candle stick . i mark previous sharp pointed of sma1 hi lo and breakout level (rbs,sbr) there i just set my pending order and let the market do its job.so far most of my friend happy with this because easy to spot SnR level.and the way i find exact level of hi lo and break out level using OHLC. there is some more of it ill share next time.

  • Hi Rayner,

    Your weekly tips have been very useful.I personally use EMA 10, 30. and MACD.

    My trigger signals are very simple.

    When the trend is up, I long when the candlesticks are above both EMA lines and the faster MACD line cuts the slower one from the bottom.

    When the trend is down, I just do the exact opposite.

  • Hi Rayner,
    Atm I trade stocks not forex and I use ema, macd histogram, rsi, adx and stochastic. I use atr for stops.
    I’m enjoying your articles and videos, the tactics are very adaptable to stocks also.

  • Hi Rayner,
    You are really godsend. Your articles are really an eye opener which makes us more confident in our trades. Looks like you are all out to make all of us a successful traders. Hats off to you. God Bless.

  • hi rayner, thanks a lot for all the post you keep giving us and your explanations, it goes a long way to enrich we traders, i tried out the ATR you taught on setting the stop loss but i dont get to understand the values i see so that i can use it to set the stop loss. a little help?

  • Hi Raynar

    I want to ask why do you trade long when the market is above the SMA , ? I know that if the market is away from the SMA it ” wants” to touch it and to rebound it , so you soould be short to the SMA.?

  • When you mention moving average in the beginning of your article are you using simple or exponential.

    Thanks for an awesome website and insight.

  • Rayner, if i use SMA 200 to see bullish or bearish trend, and stochastic 20,3,3 to spot my entry price when oversold in uptrend and oversold in downtrend to entry, what do you think?

  • I trade the daily chart as a trend trader. On the chart I use the 200 EMA, Fractals with lines ( shows me the high / lows, where to enter and where to enter add on trades along the trend, it’s a constant with no repaints, who cares if I miss a few pips entering a little later at least I’m sure ) also look for engulfing candle and use the OsMa(off chart) for confirmation. I have added a wave entry alert indicator which will repaint but does indicate the approx area of trend change.
    If I had to choose just three, they would be, the 200 ema indicator, the fractals with lines (save drawing by hand) indicator and a Fibonacci indicator, anything else are just confirmation indicators.

  • Hi..I AM BIG FAN YOU.I AM USE EMA 200.100.50.20 AND SMOOTH RSI.&MACD.I AM LERNING PROCESS. PLS TELL ME HOW IS ENTRY POINT & EXIT POINT..I AM USE THIS SET UP IN INDIAN STOCK MARKETS..HELP ME

  • Thanks for this explanation. it is to write down in my concept that many we mix several indicators of tendency, Oscillators, etc, and we should use one of each group in order not to disagree in the signals that these give us, in my case according to my estartegia Swing I use mobile averages and a Macd for the divergences basically, I have learned to handle them although I still need a lot, because every day I learn more secrets of them and therefore my operation improves every day. It is clear that part of the support in my operative and very big is to learn to manage the market cylindricals and I have fallen in love with the Elliott Waves and their management, because before I supposedly put in a very well analyzed operation and when I realized it was fired Stop Loss, when analyzing why I realized that this cycle was ending and for that reason was out. because I only focused on a single time frame without looking at the macro.
    Rayner a question when it was possible for you to explain about the Elliott Waves and their cycles? Thank you very much and thank you for your teachings.
    Translated by Google

  • Thanks Rayner for your thoughts and I am learning a lot. I am using the MACD RSI and Parabolic S & R…using H1 H4 and D1 as my TFs…can I still add ATR and the FX Session Indicator?

  • Hii Rayner,

    Thanks for all the help you are providing through your blogs and videos.

    I have learned about price action through your blogs and started trading on my own. Initially I was trading lower timeframes like 5m, 15m, 1H but my stops were hitting frequently at 1ATR before moving in my favour. I want to know does price action work on lower timeframes as well? or should I only trade in higher timeframes like 4H or 1D.

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