There are thousands of indicators that are used to find opportunities in the market and profit from them. However, most of them do not give good signals and will get you in the market late. In this article we will present several indicators which are the most accurate and give the biggest trading edge.
Indicator #1: The Bollinger Bands
The Bollinger Bands were developed 20 years ago by John Bollinger, and were designed to show the volatility of the market on the screen in an easy-to-comprehend manner. They give very good signals and can be used as support\resistance indicators, telling us – before the move occurs – that a reversal is prone to happen. When price touches the lower band it is oversold, and when price touches the upper band it is overbought.
The trading method for the Bollinger Bands is basically to look for price-action support and resistance levels, and confirm them with bounces on the Bollinger Bands themselves. This results in very high win rate and consistent profits.
Indicator #2: The Relative Strength Index (RSI)
The Relative Strength Index was developed 30 years ago by J. Welles Wilder, and is considered a powerful trading indicator that also has a predictive edge in the markets. It tells us when the price is overbought\oversold before the trends begin, so we can enter early and have great reward with little risk. The signals it gives are usually very accurate, and if confirmed using the Thomas DeMark mild bounce system it can even reach 70-80% win rate (depending on the timeframe).
It is a very accurate indicator that we highly recommend.
Indicator #3: Simple Moving Average
The Simple Moving Average, or the SMA, is an interesting indicator that most traders do not use in the right way. Most traders use it as a trend-following indicator to enter trades after a trend has been established, however we use it in an entirely different way.
The most accurate and predictive way to use the SMA is in the bounce method: we wait for trend to establish, but instead of randomly entering, we wait for price to retrace to the moving average and bounce off it. Once a reversal signal is given we enter a trade in the direction of the trend with stop loss right below the moving average, thus entering at a tactical point with small stop loss and huge reward.
The 3 indicator described above are the most accurate indicators for trading Forex and stocks, and have proven themselves in countless opportunities.
Michael Wells is a trader and author, that focuses on Forex indicator trading and price-action to generate daily trading income.