Becoming the top traders in the Forex market is more like a dream come true. The amateurs often get demotivated by seeing the low success rate. According to a recent study, 96-97% of the retail traders are having a tough time to make a consistent profit. But this data should not make you frustrated. Almost 90% of the traders join the trading industry without having proper knowledge of this market.
So, expecting any positive result from the uneducated trader is a big mistake. For instance, the intermediate traders often say indicators are nothing but a waste of time. But do you know many professional traders rely on indicators to filter the best signals? Let’s learn about the top three indicators used by professional traders. These are –
- 100 day SMA
- RSI (Relative Strength Index)
- Stochastic
100 day SMA
SMA stands for the simple moving average. Though there are many kinds of moving average used with different periods, the professional prefers to use the 100 days SMA. If you set 100 periods in the SMA and uses it in the daily chart you have got your 100 SMA. This SMA acts as a major dynamic support and resistance level. If the price hits the 100 days SMA, you can expect a strong rejection. Mostly the price action traders use the 100 days SMA to execute the trades. But this indicator is not only limited to the price action trader. Many pro traders often use the 100 days SMA to place the perfect pending orders. However, if you intend to use it for scalping strategy, make sure you have advance knowledge of money management. Without learning to manage the risk factors, you should not use this indicator to scalp the market.
RSI (Relative Strength Index)
The Relative Strength Index or the RSI is most used by the conservative traders. It states the overbought and oversold condition of the currency pairs. Before you use the RSI to the real market, use it the Forex practice account. There are two basic levels in the RSI indicator. If the RSI curve trades near the 70 marks, you can expect a bearish correction. On the contrary, if it trades near the 30 markets, look for bullish signals. This indicator works best when you use it in the major pairs. Some of you might use this indicator to trade the lower time frame but remember, lower time frame trading always results in heavy loss. You might be using the RSI indicator still you will not get any quality signals. So, try to use it as a position trader or else look more responsive indicators.
Stochastic
The stochastic indicator is a leading indicator and its function is pretty similar to the RSI indicator. However, the levels are different for determining the overbought and oversold state of the currency pairs. The level 80 works as the overbought region and the level 20 works as the oversold region. The stochastic indicators work best when you use it in the 1 hour or 30-minute time frame. However, you can also use the stochastic indicator to trade the bigger time frame. When you start using this indicator, make sure you are well aware of the leading indicator. This means it will generate signals a little bit early. So focusing on the stochastic indicators reading to filter the trade is a great mistake. This indicator should be used as a speculative tool that can give hints regarding the reversal. Things might start to get confusing but if you use this indicator to trade the demo account, within a few days you will master its use. And always try to trade the major trend even though it can identify the major reversal with high accuracy. Try to be a conservative trader and focus on long term goals. Remember, trading not a short journey. So be keep on learning new things about the premium tools.