Learn How to Combine the Price Action with Indicators
- Indicators and Price Action is great trading combo
- It provides the best from both styles
What is Important for Combining Price Action with Indicators
It is critically important to know what information you should be focused on when you are trading. Finding the best entries by definition means to “select the best or most desirable” entry positions.
How Does Combination of Price Action and Indicators Work?
In Forex terms, traders focus on taking the very best trades from all the currency pairs, rather than just a few.
We think traders should know to trade the most available pairs, focusing on every USD, YEN, and GOLD. And the best methods we are about to share have been successful in day-trading as they combine price action and indicators. Read below to learn how to trade this unique approach
Multiple time-frame trading
Most traders pick their one-time frame and rarely leave it. Instead, they simply leave their time-frame to go down to lower time-frames to find more trading opportunities.
It means they are recklessly hunting for signals on time-frames that they shouldn’t be on.
If you don’t see any success with your current chosen method, why not cherry-pick the best time frame for an entry via the multiple time-frame approach? Why not indeed?
Multiple time-frame analysis is highly advantageous. We are talking now about pure price action. For one thing, it helps you synchronize the market movements. And by aligning different time-frames, we can efficiently make use of three things:
- selective entry.
For many trend traders, having a structure point or some other pullback measurement tool can make a big difference. Looking for a confluence will keep you out of the weak trades and ensure you only take planned trading opportunities.
Confluence zones are selected by analyzing:
- support and resistance
- historical buyers and sellers
- previous swings.
All these things can influence present and future price action. A quick tip is: whenever you are not sure what to look into, try to cherry-pick the confluence.
Cherry-picking the trading hours is another edge you can use to trade the Forex market.
But remember — you need to pick the most suitable pair for trading during the same session. I prefer to trade:
- EUR and USD crosses during the London session; and
- New York Session and JPY pairs during the Tokyo session.
A great tip is that the best movements can be captured during the first three hours of each major session.
Pivot Point Indicators
Support and Resistance (S&R) levels are a vital part of any market analysis or chart for several reasons:
- History repeats itself: the market uses S&R levels for breakouts and rejections.
- Important zones and levels: majors institutions use it
- All-rounders: they appear all markets
- Different market phases: they show during retracements, trends, ranges and reversals.
- Time frames: A higher time frame is more important because a more significant part of the market uses these levels.
- Price action: They are essential to understand price pattern reactions
MACD and MACD Patterns
MACD patterns exist as one of the most successful combinations of price action and indicators. To have these patterns on your chart, set your MACD to 5,13,1 and use the default MACD on your MT4 platform.
Inverted Head and Shoulders MACD
Notice the two shoulders and a head bouncing from the support. This is a so-called bullish SHS pattern, aka Inverted Head and Shoulders. Next, you trade the neckline break of the pattern.
Standard Head and Shoulders MACD
Notice the two shoulders and a head rejecting off resistance. This is a so-called bearish SHS pattern, aka Standard Head and Shoulders. You trade the neckline break of the pattern.
Bullish Power Continuation MACD
We can spot the upside continuation easily with this pattern. The sequence which we follow starts with an A point turn to the downside. That is a so-called retracement. If the A breaks with the MACD histogram signal, we have a long trade.
Bearish Power Continuation MACD
We can spot the upside continuation easily with this pattern. The sequence which we follow starts with an A point turn to the upside. That is a so-called retracement. If the A breaks with the MACD histogram signal, we have a short trade.
Waterline Bullish MACD Rejection
Going below the 0 line and turning back up is the trademark of this pattern. Points A and B are major pivot points for this pattern. It is a signal for upside continuation.
Waterline Bearish MACD Rejection
Going above the 0 line and turning back down is the trademark of this pattern. Points A and B are major pivot points for this pattern. It is a signal for upside continuation.
Why is Combination of Price Action and Indicators Important for Forex Traders?
The JPY pairs seem to correlate strongly with equities — particularly AUD/JPY plus USD/JPY with Dax30, Nikkei and SP500 Indices. Why?
Basically, the JPY is seen as a reserve currency linked to the risk-on/risk-off sentiment in volatile markets like equities. You should look at equities each day to see which direction they are heading.
What Did We Learn From Combination of Price Action and Indicators?
The general consensus is that if equities are:
- bullish, you go Long on the JPY pairs mentioned above
- bearish, you go Short on those pairs.
With equities, you must also consider:
- whether they are at critical supports or key resistance
- the overall direction; and
- be aware of the equities market’s open times.
Combining Price Action with indicators is one of the best approaches you might go with. Try to incorporate price action and indicator methods as mentioned above into a trading method and trade it. Good luck!
Do Major News Announcements Affect This Type of Trading?
Numerous fundamental events affect the short term and long term price movements.
Especially during the day. In fact, most days, there are key events that offer potential trading opportunities. Some traders (such as myself) prefer to take trades after the news.
We will often see a good trend pattern that will be reversed by a news spike. If that happens, I use the reverse spike to get into a better price. Be smart. Try to find the critical event and make a trade at a better price.
Is There Anything Important to Mention About Trading Hours?
Why are market opening times so important? Simple — the equity market’s open times will throw a movement into JPY pairs simultaneously.
Three opening times to note are:
- Dax — Xetra opens at 09:00 CET
- SP500/Dow Jones — NYSE opens 09:30 NYET
- Nikkei — opens 09:00 Tokyo time.
Most importantly, remember that the big moves in equities usually occur in the first hour of trading, so watch JPY pairs extra carefully during this time. Additionally, you can always trade major pairs with the MACD approach.