Greetings, traders. Today we will talk about the proper indicators using. As you know, the price is the only leading indicator of the market dynamics and its further development. All secondary indicators, such as stochastic, parabolic, sliding or three-dimensional, are driven tools and they are directly dependent on price movements.
Using the indicators in the trading with the trend
For example, when forming a working system, a double top or a trend reversal on the rebound from the strong limit-level with a reversal confirmation likely will trigger a local bearish mood of some traders, which in turn will be seen by the trading volumes, and intersections of the indicators by a price. You can’t be 100% sure that this mood is long-term. Perhaps the new situation is a short-term pullback from the trend (swing area), with a further impulse push on the level breakout.
This suggests that in this trend there is a major buyer or seller who intends to gain a more advantageous position on a pullback to break a level. Together with a major player small traders may be present in this market formation. This forms a very strong trend. If the global trend movement follows sufficiently long, the entry points of turn, which are formed by indicators, arise erroneous, because it is, by its nature, a trade against the trend.
What in this situation the most of indicators will show on the chart? For example, a moving average or parabolic in a small period indicate a trend reversal, and besides, very late. Consequently, the entry into the market by these indicators will be incorrect.
First, because a stop loss will be enough large, that contradicts to the standard risk management.
Secondly, we will haven’t any specific bindings by a take profit, that, from the point of the mathematical expectation view, is detrimental for a deposit.
Such indicators can be used, but only in cases when they point to the trend continuation after a retracement. That is, the new indicator intersection by a price in the direction of the global trend. In this way, you will have at least a mathematically correct stop-loss under the retracement zone and the take profit is placed as standard, 1:3 to your stop risk. In this case, you will be in a general strong trend, and if there are a new sliding movements you can always make a partial fix of profit and buy a necessary funds volume additional.
And in the end, I’ll give an advice for beginners. May by, you may find it helpful to use a zig-zag indicator that will help you to find a needed position (momentum-rollback). Choose such indicators colors which will not distract your attention from the price. Presumably, it is some kind of a dark color. For example, I use a white background with black bars and the color of the “zig-zag” close to light-gray, almost invisible color. This is practical and aesthetically pleasing.
That’s all! Trade right and remember, “The trend is your friend!” — Forex Trader.