Price action and indicators
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    Price action and indicators

    Hi traders!

    Most of you know me as a chart trader, operating almost without any indicators. But to synchronize our languages, I’ve made recently webinar called «Price action and indicators». There I was talking about possible use of indicators – what indicators can be useful in trading?

    First, of all, remember one simple thing:

    Indicators do not identify any trend, they don’t tell you «what», they tell you «how».

    The hypothesis about possible trend is your responsibility. I’ve said "hypothesis" because there’s nothing to be sure about, and best traders know that they don’t know. They might think they know, but in reality they don’t know.

    It’s very complicated question – how to identify a trend (trend that will tend to continue), I suggest that you read my posts called «Price action basics» in this section.

    But once you’ve identified a trend, you can use indicators to fine-tune your entry, to pick better trade location, to calculate a stop or profit taking level. But they don’t do the job of identifying a trend for you.

    I will divide indicators on 3 groups:

    1. Trend-following (you see, not «trend-identifying»)
    2. Oscillators
    3. Volatility indicators

    I will show you some unconventional ways to use indicators of each category in this post.

    I will start from volatility indicators, then we will move to oscillators, then to trend-following (you will understand later why I’ve chosen this sequence)



    Volatility indicators


    Their destination is to measure volatility of a given period. If you don’t have any reasonable levels to place your stop, the only reasonable way is to use volatility. You don’t want to be wiped out of the position by noisy move. That’s why you want to:

    - Measure current volatility (let’s say it’s 20 pips)
    - Multiply its value by some parameter (usually 1.5 or 2) and get final number (let’s say, 20*1.5 = 30 pips)
    - Place your stop in a distance using this number (30 pips)

    Indicator that can be used for that purpose is Average True Range (ATR). It’s installed in MT4 trading platform. It looks like described below:

    ATR.jpg

    You can use ATR with «7» parameter to measure volatility of current trading session. Multiplying it by 1.5-2, you get your stop protected from random market movement (you will nevertheless need to identify a trend and a trade location for a trade)

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    Last edited by Value trader; 06-24-2014 at 10:33 PM.

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    Oscillators

    There is one indicator from oscillators group that I can recommend – it is called Envelopes. It measures deviation from average price and allows trader to fine-tune his entry.

    It looks like shown below:

    Envelopes.jpg

    Very important parameter that this indicator has is «deviation percent». The more this parameter is, the more volatile market you are dealing with. Set this parameter close to 0.25 trading volatile pairs and 0.15 for low-volatile pairs.

    As you see, moment when price will touch curve of indicator can be good sign of achieving wholesale or retail prices and provide good trade location. Again – you still will have responsibility to identify a trend!


    Trend-following

    We don’t need to reinvent the wheel and it’s enough to use exponential moving averages.
    Conventional way of using this indicator is buying when price crosses fast MA to the upside (after fast MA has crossed slow MA in the same direction). But this method works in not too many cases and in case of balanced market, when price makes rapid moves back and forth MAs will simply lag and mislead you.

    The more reliable way is to let impulse establish, then play a pullback to «value area». Applying concept of «value area», we assume that Value area is an area located between moving averages (whereas price is located outside of them).

    So, when breakout has occurred, your possible trade location will be to buy on a pullback to «value area». But it’s elongated, right?

    MAs.jpg

    You can apply additionally «Envelopes» to fine-tune your entry. So, moving averages will give idea of value area, Envelopes will give you idea of exact level that you can trade-off within this value area.

    enveMas.jpg

    to be continued…

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    I do not like price action the way simple traders are making popularity in it, it is not the way i am seeing it on my own trading result. I learned it and trade it on demo , the result is not good. I better stick to the trading indicator i have being using. i will try to make the three as it is explained here. I will have for trend , the oscillating and volatility.

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    Quote Originally Posted by silverlady View Post
    I do not like price action the way simple traders are making popularity in it, it is not the way i am seeing it on my own trading result. I learned it and trade it on demo , the result is not good. I better stick to the trading indicator i have being using. i will try to make the three as it is explained here. I will have for trend , the oscillating and volatility.
    do not try to use a style or system of trading that you are not used to. Just because another person gets profit by naked trading or price action does not mean that it can work easily for you. It is better to use your own system that you understand or you learn until you undertand.

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    Forex trading endless learning and this thread increased my knowledge level a bit higher to learn about price action and indicators. Normally I follow trend and support/resistance in my trade and through this way I am able to protect my capital from any unwanted hazard which I experienced earlier before trading with trend and support/resistance. Overall, this system is good I will try the lesson of this thread in my trade.

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    i think that there is no one indicator is enough for trading but it should be used with another indicators or another tools to be able to determine a good point of entry and trade in a good position and i prefer to use pivot points or fibonacci levels but each trader has his own system that help him to trade well and help him to make some profits which may be big or small according to his trading style

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    Quote Originally Posted by sameeh View Post
    i think that there is no one indicator is enough for trading but it should be used with another indicators or another tools to be able to determine a good point of entry and trade in a good position and i prefer to use pivot points or fibonacci levels but each trader has his own system that help him to trade well and help him to make some profits which may be big or small according to his trading style
    personally i dont use any indicator on my chart since i prefer price without it but when i was using indicators only made use of just 2 indicators and that was moving average and support and resistance barry,use EMA to determine where mine trend his and using S&R to understand where mine entry point will be,trading and indicators is about how well you understand the indicators.

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    Personally I use MACD, RSI and MV and also Zigzag, These indicators help me to understand the market's price movement. I believe every trader have his own strategy to get profit from the forex trading. A forex trader must be well educated on Forex Education and we all need to understand that skill and knowledge are the hidden attitude for Forex Trading.

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    These are important in the trading forex, the price action should be the first alert for the traders to know that something is about to change in the market, but such traders should still not enter the market, it is after it have finally seen a trade that some of the indicators are working just on those section of usage will now be used to enter the market. Just like a thing of combination.

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    Quote Originally Posted by cozard007 View Post
    These are important in the trading forex, the price action should be the first alert for the traders to know that something is about to change in the market, but such traders should still not enter the market, it is after it have finally seen a trade that some of the indicators are working just on those section of usage will now be used to enter the market. Just like a thing of combination.
    Market action is usually because there is something and not because of other factors and unusual that happens although there is no fundamental news though, although that usually happens because there is a causal factor price movements occur where there is a cause and continue so that we take advantage of the movement

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