How To Use The Best Forex Reversal Indicator
If you arm yourself with the right technical tool, the forex market promises high returns on investment. One right way to reach your income goal is to use the best forex reversal indicator for all your trade. Whether you are a day trader or scalper, installing the best forex reversal indicator in your MT4 trader is a no-brainer if you want to mitigate losses inherent on the market.
It is practically impossible to measure the FX market accurately with the use of top 10 mt4 indicators. But forex reversal indicators will help to calculate the possibility reversals in specific spots. The forex reversal indicators work by confirming reversal signals that are generated by graphic patterns.
There are several forex reversal indicators for forex trading. These indicators offer suggestions based on candlestick patterns or price action. Using the best trend reversal MT4 will enable you to determine when to enter or exit a trade position. Except you are a veteran, the chances are that you would make costly mistakes in your choice of the best forex reversal indicators.
Today, we will be taking a look at the 4 best forex reversal indicators and how to use them for trading the FX market.
Best Forex Reversal Indicators
1. Moving Average Indicator
Moving average indicator is one of the best indicators used by traders world-wide to track trend reversal on the FX market. Instead of using a single MA line, the best approach to using this indicator is to use multiple moving average lines.
In the screenshot above, three moving average lines have been used for trading the GBP/USD currency pair. These lines come with different periods – 15 (red), 35 (green), and 100 (blue). The overall direction of the currency pair is shown via the 100-period blue line.
Like we said earlier, the problem with using only the 100-period blue line is that it can generate false reversal signals. Using the 3 periods guarantees more accurate signals. With the 3 periods, we can outline the following signals:
1. Bearish reversal signals are generated only if the bar closes below moving averages 15, 35, and 100. This means the price of GBP/USD is about to drop. The bearish reversal signals can be seen on the left part of the chart.
2. Bullish reversal signals are generated only if the bar above moving averages (MA) 15, 35, and 100. This means the price of GBP/USD is about to increase. The signals generated can be seen in the right part of the chart.
One drawback of the moving average indicator is that it provides scare signals; as such, the opportunity to make money is very limited.
2. MACD Indicator
The MACD indicator is also another high forex reversal indicator used by both veteran and intermediate traders. This tool is perfect for displaying trend cycles and trend strength. On the screenshot below, we use the MACD indicator to plot a graph for the EUR/USD currency pair.
The indicator comes with periods 5, 100, 5. The red dotted line and the green histogram crossing the zero level shows that the reversal signals are right. We advice to combine the macd indicator with a good mt4 spread indicator.
At any time you have the green histogram alone crossing the zero level, it is risky entering a trade position. Similarly, if the red dotted line crosses the zero level alone, it is also dangerous to open a trade. The MACD indicator may not be a perfect tool, but it certainly can help improve your earnings. On the downside, it can give lagging signals and sometimes generate false signals. TIP: Please check our Best MT4 Indicators blog for more indicator reviews.
3. Stochastic Oscillator
The Stochastic oscillator is a performance-driven indicator used by forex traders to track the beginning and the end of the market trend. The stochastic oscillator generates reliable signals that even newbies can interpret.
We use this indicator (with periods 250, 3, 3) to trade the EUR/USD currency pair, and the screenshot is above. The screenshot shows that the indicator accurately predicted the upcoming reversal.
Once the indicator crosses levels 20 and 80, there is a transition from the bearish trend to a bullish trend. One fantastic feature of using the stochastic oscillator is that it is very sensitive to price changes. Also, it generates exit signals if it predicts that the price will reach its lowest point.
4. Alligator Indicator
This is another power forex reversal indicator you need to give serious consideration if you are a newbie aiming to improve your skills. The Alligator indicator comes in three moving average lines known as – jaw, teeth, and lips.
1. Jaw (blue line)
2. Teeth (red line)
3. Lips (green line)
These lines come with 13-period, 8-period, and 5-period, with 8 bars forward for the jawline, and 5 bars forward each for Teeth and Lips lines. The indicator provides the following entry signals:
1. Short entry: This is when the currency pair price is below the indicator’s jaw, teeth, and lips lines
2. Long entry: This is when the currency pair price is above the indicator’s jaw, teeth, and lips lines.
The major difference between the Alligator indicator and the MA indicator is that the former comes with three MAs, while the latter comes with three individual indicators. Also, the Alligator indicator is more user-friendly than the MA indicator.
Conclusion Best Forex Reversal Indicator
There you have it! The best forex reversal indicator can help scale up your earnings and also enhance your trading skills. No matter your level of expertise on the FX market, downloading and installing any of these indicators is very simple and straightforward. However, we advise you to start with a demo account before switching to a live account so that you don’t lose money to market forex.
Additionally, we advise you not to use any of these indicators in isolation, as they are prone to generate false or misleading signals. At best, you can combine them with other technical indicators like the support and resistance indicators. Then lastly, if you check on our platform, you will find a wide array of technical indicators and other tools that you can combine with the best forex reversal indicator for maximum profits, so look at this link for it.
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