Choose your Forex Technical Signals Wisely They May Give You False Feelings of Security
Forex Technical indicators (TI) usually carry far less weight than their Fundamental counterparts. In fact, the major central banks and the other big time players place about a 25% value on TI when making their trading decisions.
Technical indicators follow prices and therefore have little forecasting value. This screen shot shows how I normally set up the screen for my trading...
First, the candlestick chart provides a quick picture of price history and volatility. It's very obvious what direction prices are heading and the size of each bar shows me the volatility.
Secondly, my chart shows a 50 period Simple Moving Average (SMA). the SMA helps to clarify the trend during volatile periods. It also gives me a reference to gage whether prices are nearing or pulling away from the average. The SMA often acts as a support / resistance line.
MACD, RSI and Stochastic are indicators I like to watch. They provide some confirmation of trend, as well as providing some insight into market momentum. If prices are rising but the indicators are level or falling, it is an indication the rally may be running out of gas. Basically I use them as warning lights.
Most trading platforms can display hundreds of TIs. Don't get caught believing they'll give you "the signal". Use them in a "supporting role" only!
