The best indicator combinations are not only simple and effective but they also serve various purposes. In today’s blog post we will discuss which indicator-indicator and indicator-tool combinations are in my opinion the best in the field of Forex trading.
You as the reader are highly encouraged to add your opinion in the chat down below. There are certainly existing combinations which I have not mentioned. Please take a minute to let us and other traders know what your favorite mixture is.
IDENTIFYING THE BEST COMBINATIONS
In the first place this post is only considering tools and indicators and NOT price action. Price action reading and candle stick patterns always have a universal importance, no matter what strategy or analysis is done. The below mentioned indictor combinations are only considering indicators and tools, and price action and candle stick can always be added.
Second of all, the post is only considering the best combinations of two (2) indicators or tools and nothing more. The chart is best served by keeping it simple, and it is important to avoid paralysis of analysis via overcrowded charts.
The best indicator combinations share the following characteristics:
Use an indicator and tool that provide information about trend & momentum, patterns, and support & resistance (read more here)
Use indicators and tools that have a different purpose. The value of any indicator or tool diminishes when they are used for the same goal. If you place 2 medium speed EMA’s on the chart and also the Ichimoku indicator, then this is using 2 indicators for the same purpose: trend identification
Use indicators that support each other, have meaning and value for you and keep your charts clean and understandable. No matter what any trader says, the most important is that the indicators and tools make sense to you.
THE BEST COMBINATIONS
The following combinations are what I consider the best.
Strike (entry, trend) & ATR (exit, momentum): the strike indicator is a great method of identifying the trend and spotting situations where price is making a pullback and continuation. The strike tool also clearly shows where the entries are located via a painted candle on the chart. The strike is a great combination with the Average True Range (ATR) because the latter defines the exit zone and spot. Together, they help simplify the entry and exit plan with clear and concise rules and leave zero room for doubt.
Fibonacci (S&R, entry, exit) & trend lines (trend/patterns): the Fibonacci tool is very multifunctional as it can be used for entries, exits, support & resistance, and even some patterns (Gartley). Fibonacci tools are the best when a market is trending and NOT ranging and that is why trend lines are important. Trend channels help with identifying the trend, which help traders avoid using Fibs at the wrong times in choppy markets. Trend lines are also instrumental when identifying patterns, like flags and triangles.
Awesome oscillator (trend/momentum) & fractals (S&R, entry, exit): the awesome oscillator is a method of analyzing where the trend is by checking where the histogram bars are positioned in comparison to the middle line (on one time frame higher than entry). The distance between the histogram bars and the zero line also indicate the strength of lack of momentum. The fractals indicate simple and quick visualization of support and resistance and can help indicate the breaking point for entry when trading with the trend and momentum of the awesome oscillator.
Fibonacci (S&R, entry, exit) & moving averages (momentum/trend/patterns): this particular combination is similar to the Fibonacci & trend line pairing. The main difference between a moving average and trend line is that a moving average is automatically plotted on the chart and the moving average is ‘dynamic’ as it adjusts its level with each new bar. The trend line is a discretionary tool which is added to the chart by the trader themselves, like the Fibonacci as well. Also the trend line is more ‘stationary’ as it will not change its angle due to a new candle. As a last note, the moving averages can be indirectly used for consolidation recognition when the indicator is angled flat (lack of trend).
Ichimoku indicator (all): the Ichimoku indicator clutters the chart substantially, but it does provide many purposes in one overview. Quite remarkably, the indicator can be used for spotting trend, momentum, S&R, and some patterns.
Parabolic (momentum, S&R, entry, exit) & moving averages (trend/patterns): the Parabolic indicator is a method of identifying setups that are showing a potential break; whereas the moving averages can help identify the trend. By using the moving averages in combination with the Parabolic, traders are able to enter when price has completed a consolidation and it is breaking for further trend continuation. The largest risk is a false break out or reversal. Both dangers can be somewhat limited when using candle sticks and divergence.
Divergence (momentum, trend) & trend lines (S&R, entry, exits): a divergence indicator like the RSI, MACD, or AO, provides valuable information on whether the trend and momentum have sufficient power for a trend continuation. A lack of divergence means that a trend has sufficient speed to maintain itself and trend lines can be used to take trends with the trend. A chart where divergence is present means that trend trades are on hold and potential reversal trade setups are in the picture. Of course, the more divergence on one time frame and the more divergence on other time frames increase the likelihood of a reversal setup indeed materializing profitably.
Please let us know down below which ones you totally dislike, like to use yourself, and the ones you want to add to your list and discover in more detail!
Thank you for sharing this article and wish you Happy Hunting!