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Originally Posted by CajunFX
Hello All,
I am new to Forex (might explain what I am doing here) and in my readings to date I keep hearing the message "don't over anylize the market". The other message I keep getting is that a successful trader uses just 2 or 3 indicators. So my question here is...
If you could only use 3 indicators, what 3 would you use and why?
I am still learning and many things in life you cannot learn from books so all feedback is appreciated.
Regards,
CajunFX
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Dear CajunFX
The most important thing about indicators is to understand exactly what it is they are telling you. But to answer your question...
No.1: Moving Averages. This encompasses MACD as well and many volatility derivatives. MA's tell you a lot. They tell you the trend and the volatility of the market. Plot at least three, short, medium and long term. When they start to cross each other you can tell a lot about the state of the market and if you measure their gradient and convergence/divergence you can get an idea of the rate of change of market sentiment. Great for entries and of limited use for take-profit. Remember there's lots of ways to calcuate these, Open, high, Low, O+H+L/3... etc and that there's at least two ways to calculate an EMA.
No. 2: Elliott Waves. This also encompasses most breakout-type indicators. Elliott waves start to become more important as you trade shorter time frames. They let you identify collapses in market confidence whether bull or bear and are invaluable for both take-profit and stop loss. Good for take profit and stop loss, not so good for entries.
No. 3: ATR. The big one for stop losses and of secondary interest for breakout entires (though I would never use them for such). Surely one of the best stop loss indicators of all though.
... If I had to go No 4 I'd get into the channels, simple MA/offset and Bollonger/Donchian etc. The key to swing trading, one of the most consistengly profitable strategies.
Hope this helps.
Have fun
Medran