There is no clear proof that some indicators can be profitable. A lot of scientific research papers tried to find an answer to this. All researchers tried to find good indicators for forex trading and to create a ranking list looking for the best forex indicator and the most profitable forex indicator strategy.
For example Exchange rate prediction using hybrid neural networks and trading indicators, Fuzzy logic, trading uncertainty and technical trading.
A lot of researcher tried to find answer testing RSI and MACD indicator such as article Revisiting the Performance of MACD and RSI Oscillators or Technical analysis and the London stock exchange: testing the MACD and RSI rules using the FT30.
But there is no consensus about Which Forex Indicator is the Most Profitable !!!
Forex markets are full of uncertainties and risks. If the risks are not anticipated or calculated properly traders fail miserably in trading. As per an estimate, 96% of the traders lose a lot of money in the market and subsequently end up losing. So why is it that forex trading proves to be a failure more often than not? It’s because of the following reasons:
1. No or little knowledge about the market and the trading strategies
2. Poor risk management and overtrading.
Someone new with forex trade obviously would not know much about the market and the trading strategies. He would not know when to trade and when not to trade. Due to little knowledge, they end up trading on holidays as well which is the worst time to trade. That’s because the volatility and liquidity of the market are lowest at this time. Traders in the forex market need to keep a close eye on these indicators and act when there are maximum opportunities for profit.
Forex indicators only give traders a better edge, remove noise from the price chart, give a clearer picture to the trader. Indicators are the only tools for better visualization of the market price action.
The most used indicators in forex trading
So which forex indicator is most profitable? To determine the same, there are some technical indicators that are decided to depend on the reason for which they are used.
Forex indicators come extremely handy in predicting the fluctuating prices. Using the perfect indicator is the key to making accurate estimations and making profits. A new forex trader should be continually learning about the market. To get success in forex trading, it is required to learn the aspects of technical analysis along with the respective technical indicators that are a major part of the analysis. There are basically two types of market analysis in forex which are: Fundamental and Technical.
While fundamental analysis is more based on the overall market trends and physical indicators and their functioning over time, technical analysis is about the technical indicators. To forecast the price changes effectively technical indicators and analysis come very handily. But while doing so it is important that you select a perfect technical indicator to earn maximum profits.
Let’s look at some of the most profitable indicators that help in estimating the price movements.
While there are too many indicators for technical analysis, the best ones are few. Listed below are some of the most profitable indicators used by traders:
1. Pattern recognition indicators
Pros
– Great in terms of reversal zones confirmations
– Provision for multiple entries post any reversal
– Takes you into making a profit faster and avoids losses once you are in profit
– It Cuts downtime on all the charts to a great extent.
Cons
– You need to use additional confirmations like Fib Channel, Harmonic Patterns, Fib Retracements, Trendlines, Pitchforks, etc.
– It is not a strategy that works on ready to serve basis, there are lot of demos that are required to be done to learn the don’ts.
– You need to be live on charts keeping a watch to trade, you can’t do something like to just buy and forget; you rather have to get in and get out of trading positions rather quickly.
2. Moving Average
These indicators are the best trend indicators that help in the timely identification of the trend and necessary following. It reflects the average values of the process over time.
To make it simpler MA always follows the prevalent market prices. This indicator helps you in getting a clear picture of the current market directions without making any prediction of future prices. It helps you determine whether you should buy or sell a pair.
Pros:
– Finds the trend reversals
– Shows potential support and resistance levels
– Identifies the current trend directions
Cons:
– Lags the present prices
3. Bollinger Bands
They are a measure of market volatility. These bands come very effectively when there are no clear trends in the market. Bollinger band indicators put the prices in a box that lies between a couple of outside bands. Prices in the market revolve continuously near the middle lines, for shorter periods.
Pros
– Effective when the currency pair is traded in its range in a parallel market.
Cons
– It may get stagnant at one Bollinger band if the market trends are strong.
4. Moving Average Convergence/Divergence (MACD) and RSI Relative Strenght index
This helps measure the major driving forces in the market. This is based on the MA method and shows the Oscillators. They are shown in a box separately. These oscillators once they go very high they come down as well.
MACD effectively measures the market trends and momentum. Having MACD on your chart could strengthen your trading strategies and systems. RSI is an indicator that is well used in the forex market as same as MACD. You can read in detail about RSI indicator on our website.
Pros
– Used in both trending and ranging markets
– Learning oscillators gets easy with MACD
Cons
– Lags the price charts
– Signals may arrive late, and hence do not follow strong market moves
Conclusion
So, in the end, a trader has to consider all the fundamental as well as the technical factors in market analysis for a profitable trade. The technical indicators mentioned above are the key to profitable and stable forex trade. Making the best use of all the analysis and indicators at your disposal is the basis of a successful forex trader.
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