Tips and tricks on reading forex indicators

Most beginners joined forex because they want to make the profit from the forex business, they are tempted by profits from forex trading.
Yes indeed with the forex business we can generate large profits in a relatively fast time compared to other businesses.
But to be able to generate profits is not as easy as seen, because it needs to know and master how to analyze forex price movements appropriately.
We as the trader need the best forex trading strategy so we can get profits are consistent or always profit, both for scalping techniques and daily morning trading.
Forex trading is a trading system that can generate two-way profits, meaning we can get profits when an asset price is rising or falling.
In forex trading there are only two types of trading, namely Buy or Sell, which means:
  • Choose Buy orders when predictions of price movements will rise
  • Select Sell orders when predictions of price movements will drop
So we only have to be able to predict whether a price movement will rise or will fall from the current price.
And to predict it, there are two kinds of analysis, namely fundamental analysis and technical analysis. What we will discuss is technical analysis using indicators.

Here are some of the collection of technical analysis strategies with the most accurate indicators:

  • Bollinger bands indicator.
  • Moving Average Indicator
  • Alligator indicator

Forex trading strategy with Bollinger Bands indicators

Bollinger indicator bands consisting of 3 types of lines, namely:

  • Upper bands
  • Middle bands
  • Lower bands
For the actual midline, it is exactly the same as the Moving Average indicator line with period 20. Which acts as the basis for calculations for the Upper bands and Lower bands.
Bollinger bands indicator can be used to find out whether a market is crowded or quiet.
The size of the distance between the lines of the Upper (Upper bands) with the bottom line (Lower bands) influenced by the level of price volatility that is happening on the forex market.
  • When the market is crowded, it is marked by the distance between the Upper bands with the Lower large  from before (Tending to strengthen the trend)
  •   When the market is quietly the distance between Upper bands with Lower bands narrow or small (tend to be sideways )

In theory, there are two kinds of strategies for easy ways to read indicators of Bollinger bands, namely:

  • Will the price reverse (bounce)?
  • Will the price movement continues the ongoing trend (continuation/breakout)

As we discussed above the Bollinger bands indicator serves to analyze price volatility that is happening.

When the price turns bouncing

Price movements will tend to bounce after touching the top line (Upper bands) or the bottom line (lower bands) with the centre line as the target.
In this case, the price will not pass from the Upper bands and Lower bands, so we can use this signal to make order decisions on forex trading.
How to read it is easy enough to see when the candlestick movement touches the upper line then it is predicted the price will reverse towards the middle bands or to the lower bands.
The way to read the signal is:
Choose Buy order:
  • When the candlestick movement has touched the Lower bands
  • Wait until the bullish / up candlestick is formed
  • Don’t forget to set stop loss
Choose Sell order:
  • When the candlestick movement has touched the Upper bands
  • Wait until the bearish candlestick is formed
  • Don’t forget to set stop loss

Important Note: This method only applies when the market is stable because when market volatility is high the above method will not work.Tips and tricks on reading forex indicators

 

For a market that tends to be stable marked by the direction of movement of the Upper bands and Lower bands tend to be parallel or not leading to a sharp slope as shown above.

Different markets with high volatility are characterized by both the Upper bands and Lower bands lines which like to open/stay away from each other, by leading to certain trend movements whether it’s up / uptrend or down / downtrend.

When prices are a continuation / continue the current trend

The movement of the Bollinger bands line tends to widen when the forex market is crowded and narrows when forex is quiet.

In addition to the strategy that prices tend to bounce/reverse after the candlestick touches the lines of the Upper bands and Lower bands which only applies when the market is stable/consolidated.
But not always when prices touch the line Upper bands and Lower bands then price movements will reverse direction. sometimes the trend still continued.
That is why when determining the entry point for Buy orders must wait for the formation of a whole bullish / up candlestick, to anticipate if the price does not reverse.
Even though prices do not reverse we can still take advantage of forex order opportunities, namely:
Tips and tricks on reading forex indicators
Example of Sell order:
  • When the lines of the Upper bands and the Lower bands began to move wide by pointing down
  • Even though candlesticks have touched the Lower bands, white bullish candlesticks do not appear
  • The second candlestick after the first candlestick that touched Lower bands is still a bearish candlestick
  • That is a sign of price movements going downward / downtrend.

For Buy orders, the way it works is almost the same except that the trend movement is upward.

Easy isn’t it? how to read and use indicators of Bollinger bands to predict the direction of forex.

Forex trading strategy with the Moving Average indicator

The function of the Moving Average indicator is to determine the trend, and the prediction of price movements will be reversal or continuation when it has reached a certain price range.

There are 4 Kinds of Forex Strategies with a Moving Average Indicator, namely:

  • Penetrating Moving Average Strategy
  • Bouncing Moving Average Strategy
  • CrossOver Moving Average Strategy
  • Double Moving Average Strategy

Penetrating Moving Average Strategy

We are free to choose the type of MA that we like, that is, it can choose SMA or MA (free) with the default settings only, without changing anything.

Order BUY Signal:

  • When a bullish candlestick (white) forms from below the MA line, then closes above the MA line (as in the picture), then the next move tends to be bullish.
  • Wait until the candlestick is fully formed
  • Don’t forget to put a stop loss on the lowest level of the candlestick that breaks the MA line.

SELL Order Signal:

  • When a bearish candlestick (red) is formed from above the MA line, then closing below the MA line (as in the picture), then the next movement tends to be bearish.
  • Wait until the candlestick is fully formed
  • Don’t forget to put a stop loss on the highest level of the candlestick that breaks the MA line.

Bouncing Moving Average Strategy

The bouncing strategy is a strategy to read the analysis movement using the Moving Average, where a price movement when touching the MA line, the price will be reflected back ( reversal).
In brief, this strategy describes when forex price movements are unable to break the Moving Average line so it becomes bouncing.
To see the signal that emerges from this strategy it is very easy to simply monitor the appearance of candlesticks that are close to the Moving Average line.
This method can also be used to determine the signal when the penetrating strategy above does not appear. For easier explanation, you can see the picture below
Tips and tricks on reading forex indicators
Image explanation:
The price movement is going up (bullish / uptrend), then a bullish (white) candlestick is formed that is closed right in the line of the Moving Average.
But the next candlestick is a bearish candle / down (red) which finally happens the reversal of the forex price.
SELL Order Signal:
  • Wait for the bullish/rising candlestick to be formed intact and closed right on the Moving Average line
  • Followed by the appearance of a bearish/down candlestick
  • The next prediction of price movements tends to be bearish
  •  Make a Sell order with an entry point / open position after the red candlestick is formed as a sign of confirmation
  • Place a stop loss at the highest bearish/red candlestick level

For example BUY orders, with a bouncing strategy, you can pay attention to the image below to make it easier to understand

Tips and tricks on reading forex indicators

Image explanation:
The price movement is down / bearish, then a bearish candlestick (red) is formed which is closed right in the line of the Moving Average. But the next candlestick is a bullish candle (white) which finally happens the reversal of the forex price.

Moving Average CrossOver / Crossing Strategy

This strategy is to determine the entry point in an open position by waiting for the moment of signal reversal
This method requires 2 Moving Average indicator lines (to make it easier to read using different colour lines and thicknesses:
 Moving Average indicator with period 14 (red, thin)
 Moving Average Indicator with Period 35 (blue, thick)
This is how it looks:
Tips and tricks on reading forex indicators
Need to know :
  • When the period MA Line 14 (red) is below the MA line period 35 (blue), it means that there is a downtrend
  • When the period MA line 14 (red) is above the MA line of period 35 (blue), it means that there is an uptrend

The Moving Average Indicator Strategy with CrossOver:

Wait for the MA line with Period 14 to break the MA line with Period 35.

Tips and tricks on reading forex indicators

BUY order signal:

When the Redline (14) from above breaks the Blue line (35) down

SELL order signal:
When the Redline (14) from below breaks the Blue line (35) and above

Double Area Moving Average Strategy

This method is very effective in the market that is in a trend, both in the movement of rising trends and downtrend. And is suitable for scalping trading styles.

This method can also be applied when we have missed the opportunity to open a position with the Moving Average CrossOver strategy above.
This method is by using the area between the two Moving Average indicator lines. This strategy also requires two Moving Average lines, to make it easier to use different colours:
  •  Moving Average indicator with period 14 (red, thin)
  • Moving Average Indicator with Period 35 (blue, thick)
Wait until the two MA lines have the same slope (will form a trend). Or when after the red MA line (14) cuts the blue MA line (35).
Buy or Up Signals:
 Occurs in the Uptrend
 Make a Buy order when the price/candlestick enters the area (yellow) between the two Moving Average indicator lines.
Tips and tricks on reading forex indicators
SELL signal or down:
Occurs in the Downtrend /
Enters the area (yellow) between the two Moving Average indicator lines.

Forex trading strategy with Alligator indicators

In accordance with the name of the indicator (Alligator), how to read this indicator is also like a crocodile/alligator.

There are only 3 steps:
  • Waiting for Hungry
  • Eat up
  • Sunny (falling asleep)

To make it easier to read the signal we have to remember the colour of each indicator line, the most important thing is to remember the colour of the LIP line.

Tips and tricks on reading forex indicators

How to read and use the Alligator indicator for forex trading
  • When the three indicator lines (jaw, teeth, lips) are close together means that the Alligator is over / sleeping, and it is not recommended to open a trading position at a time like this.
  • The longer the Alligator sleeps, the more hungry when you wake up later
  • The more Alligators eat, also the longer he sleeps.
  • If the Lip line is below the other lines it means there is a downtrend
  • If the Lip line is above the other lines it means that there is an uptrend

How to use indicators:

SELL order signal:
  •  When the indicator line starts to open/widen
  •  The Lip Line is below the other lines
BUY order signal:
  • When the indicator line starts to open/widen
  •  The Lip Line is above the other line

Tips and tricks on reading forex indicators

Conclusion

Some of the above indicators you can use as your trading tool, but there are no perfect indicators in predicting future prices, you need to train and add experience with the savings, in applying the trading rules, and accompanied by money management and risk management.

 

1 Response

  1. December 9, 2018

    […] Tips and tricks on reading forex indicators […]

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