Now on to the good stuff: Just how profitable is each technical indicator on its own?

After all, forex traders don’t include these technical indicators just to make their charts look nicer. Traders are in the business of making money!

If these indicators generate signals that don’t translate into a profitable bottom line over time, then they’re simply not the way to go for your needs!
In order to give you all a comparison of the effectiveness of each technical indicator, we’ve decided to backtest each of the indicators on their own for the past 5 years and the one that came out on top is the one below. Look at this.

Many indicators floods the Forex market and most of them works only based on a particular logic. It may be Moving Average, Relative Strength Index (RSI), Stochastic Oscillator, etc.

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Many indicators floods the Forex market and most of them works only based on a particular logic. It may be Moving Average, Relative Strength Index (RSI), Stochastic Oscillator, etc.

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Why Do No Other Forex Indicators Come Close?

Most of them try to better predict if price is going long or short.  Almost all of them fail at this. The ones that succeed however, still need other indicators to go with it before best being able to determine which way price is heading.

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Due to its highly advanced operating capability, the signals generated by the developers have an amazing hit-ratio and works out very well every time. Though a trader can not gain profit, each and every time he/she trades,

It’s Blue Red indicator shows clear up and down trends on hourly charts on any currency pair.

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Using these parameters, we tested each of the technical indicators on its own on the daily time frame of EUR/USD over the past 5 years.

We are trading 1 lot (that’s 100,000 units) at a time with no set stop losses or take profit points.

We simply cover and switch position once a new signal appears. This means if we initially had a long position when the indicator told us to sell, we would cover and establish a new short position.

Also, we were assuming we were well capitalized (as suggested in our Leverage lesson) and started with an example balance of $100,000.

Aside from the actual profit and loss of each strategy, we included total pips gained/lost and the max drawdown.

Again, let us just remind you that we DO NOT SUGGEST trading forex without any stop losses. This is just for illustrative purposes only! Moving on, here are the results of our backtest:

Most Important Forex Indicators All Forex Traders Should Know

Trading on the Forex market is not easy. Despite this, a number of traders are still able to consistently make profitable returns. Part of the reason for this is that they successfully use Forex trading indicators. The existence of the ‘best Forex indicators’ implies that the Forex market is not a random walk, as some economic theories contend. The flaws of the human psyche mean that markets do not always behave rationally.

The Forex markets have a tendency to behave in certain ways under certain conditions. This behaviour repeats itself, meaning that certain price patterns will occur time and again. The best Forex indicators attempt to recognise such patterns as they form, and they gain an edge by exploiting that knowledge. Make sure to use feature-rich trading software, such as MetaTrader 5 (MT5) to spot more opportunities.

Which Are The Best Indicators For Forex & CFD trading?

The best Forex currency indicator will be the one that suits your own trading style and psychology. However, there is no single Forex best indicator that fits all trader styles. The good news is there is a wide variety of Forex technical indicators available. With time and experience, you should be able to find the right indicators for you.

Great Forex Indicators For Following Trends

As noted earlier, there are a lot of contenders for the most popular Forex indicator – and some get quite complicated, for instance, Forex technical indicators which measure ‘open prices’, ‘highs’, ‘lows’, ‘closing prices’ and ‘volumes’. This is why you should start with more simple Forex trading indicators. Let’s check out some of the different types of forex indicators:

Simple Moving Average

A Simple Moving Average (SMA) is the average price for a specific time period. Here, average refers to arithmetic mean. For example, the 20-day moving average is the average (mean) of the closing prices during the previous 20 days.

Why use the SMA?

The purpose of the SMA is to smooth out price movements in order to better identify the trend. Note that the SMA is a lagging indicator, it incorporates prices from the past and provides a signal after the trend begins. The longer the time period of the SMA, the greater the smoothing, and the slower the reaction to changes in the market. This is why the SMA is not the best Forex indicator for receiving advanced warning of a move.

But here’s a good aspect – it is one of the best Forex trend indicators when it comes to confirming a trend. The indicator usually operates with averages calculated from more than one data set – one (or more)within a shorter time period and one within a longer time period. Typical values for the shorter SMA might be 10, 15, or 20 days. Typical values for the longer SMA might be 50, 100, or 200 days.

You might be wondering – when does it signal a trend?

It signals a new trend when the long-term average crosses over the short-term average. If the long-term average is moving above the short-term average, this may signal the beginning of an uptrend. If the the long-term average is moving below the short-term average, this may signal the beginning of a downtrend. You can experiment with different period lengths to find out what works best for you.

Exponential Moving Average

While similar to the simple moving average, this Forex trading indicator focuses on more recent prices. This means that the Exponential Moving Average (EMA) will respond quicker to price changes. Typical values for long-term averages might be 50-day and 200-day EMAs. 12-day and 26-day EMAs are popular for short-term averages.

A very simple system using a dual moving average is to trade each time the two moving averages cross. You then buy when the the shorter moving average (MA) crosses above the slower MA, and you sell when the shorter MA crosses below the slower MA.With this system you will always have a position, either long or short for the currency pair being traded.

You then exit your trade when the shorter MA crosses the longer MA. The next step is to place a new trade in the opposite direction to the one you have just exited. By doing this, you are effectively squaring and reversing. If you don’t want to be in the market all the time, this is not going to be the best Forex indicator combination.

In that case, a combination using a third time period might suit you better. A triple moving average strategy uses a third MA. The longest time frame acts as trend filter. When the shortest MA crosses the middle one, you do not always place the trade. The filter says that you can only place long trades when both shorter MAs are above the longest MA. You can only go short when both are below the longest MA.

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Trader’s also have the ability to trade risk-free with a demo trading account. This means that traders can avoid putting their capital at risk, and they can choose when they wish to move to the live markets. For instance, Admiral Markets’ demo trading account enables traders to gain access to the latest real-time market data, the ability to trade with virtual currency, and access to the latest trading insights from expert traders.

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