Are you having hard time to generate returns from trading signals? Well, this is exactly something that most traders are experiencing at present. There arises an important question, “Is it due to trading signals being followed or is it the trader cannot take the right decision and do not know how to use the signals?” When it is about Forex and Binary trading, signals are believed to be a smart tool in this regard. A trader needs to follow an effective strategy at the time of using signals like they do for other trading purposes. The trader must be aware about the trade limits to execute, what entry levels will be suitable for stopping losses to put it place. Go through this blog post to know about some important indicators that will drive signal software to use them effectively and earn huge profit from them.
The Parabolic SAR
One of the common signals to use is the Parabolic SAR or the Parabolic Stop and Reserve. It is a combination of the technical analysis signal based on time and price.
The Parabolic SAR had been set up in the year 1978 by Welles Wilder. It is used to trail prices with the following trend.
When prices remain above the Parabolic SAR indicator, the trader enters into a long position for purchasing the currency. Alternatively, if prices seem to be below the indicator, then the trader will either go short or sell the currency.
The major significance for traders from the Parabolic SAR is enabling the trader to place stop losses. The trader uses indicator for placing his / her automatic stop levels. After the price breaks past the Parabolic SAR, this is indicates it has already broken a trend and is probably in line for a reversal.
Automated signal software tries to generate a signal depending on if the Parabolic SAR denotes that the trend is reversing the present levels. In case the software detects the price is breaking away from an uptrend, it will raise a sell signal.
Using the Parabolic SAR signals are of great help however, you need to use preventive methods before you decide to enter into the trades. Some of these are the following:
When entering into the trade market, your purchase and sale has to be the averages of the highest and lowest prices for the last 4 candles.
Do not conduct trade for more than 4% of the size of account on signal position.
When trading Forex, set sufficient stop loss limits that remain on parabolic SAR indicators level.
While deciding to enter into the trade by means of a Parabolic SAR indicator, try to take the decision depending on where the present price is with the indicator.
Moving Average Indicators
Moving average indicator is considered to be an effective way for the trader to evaluate the trend of the asset. There are usually two kinds of moving averages that trading signal providers use at the time of generating signals.
The first is Simple Moving Average or SMA. This is generally calculated as average of the previous x periods where “x” is the time span to be considered. Different traders combine together an SMA indicator having varied time periods for obtaining the best indicator of the trend.
The second is the Exponential Moving Average which is somewhat similar to the SMA. It has the exception that the weighted version places put more emphasis on the latest price ranges. This can be of great benefit for the trader as it enables him to take the right decision when the markets move quickly.
Moving averages are a result of the events that have already occurred and are not necessarily predictive. It can be effective for the trader to spot the trends through all market noise. Quite similarly to the Parabolic SAR, the Moving Average may point to probable reversals in the trend. A signal provider will consider moving averages for producing the signals that use an algorithm to consider two or three different moving averages.
The algorithm sets predefined rules on what signal to offer depending on the levels of all moving average lines. If you need to follow the signals of a provider based on moving average indicator, then don’t forget to take these risk management steps.
- Make commitment to a pre-defined trade size only at the time of entering which should be less than 4%.
- Trading decisions must depend on the positions of a number of moving indicators on an average that have different time parameters
- Set purchase and sell points that are average of past 4 candle sticks
Moving Average Convergence Divergence (MACD)
The MACD indicator is an extension of the moving average indicators that uses two different EMA indicators as input into its formula. Just like moving averages, the MACD denotes when you should purchase as well as sell a specific currency pair.
The MACD has been calculated by subtracting 12 day EMA from 26 day EMA. Besides, a 9 day EMA line can be used and termed as “signal line”. These two lines are plotted together and the 9 day moving average can be used as an indicator of whether to purchase or sell.
If the MACD indicator remains below signal line, then this might be an indicator to sell pair and the opposite may be said when the indicator seem to be above signal line.
On the contrary, when signal line diverges from MACD, then the trend that had been in place might be considered and traders should take necessary caution accordingly. Traders need to be aware about strong upward moves in the MACD as this might indicate that the currency pair has been over purchased and the 12 day moving average is increasing significantly in comparison to the 26 day one.
Algorithmic trading software will be using the same logic at the time of delivering technical trading signals for the traders who then subscribe to these signals. The software will assess the levels of the MACD and the signal line and adjust the signals generated depending on the historical volatility. In case the uptick in the MACD seems to be within the past standard deviations, then overbought signals will not be issued.
When using MACD trading signals, you need to consider them in mind before entering into the trades.
You need to have a set maximum that you want to invest as a percentage of the total capital balance.
- Entry decisions depend on how far the signal line is from the MACD indicator. This should take into consideration how volatile the indicators are in the past with respect to the present observed movement.
- Entry and Exit levels have to be based on the observed prices for the previous 4 candles.
- If trading Forex remains on the margin, you need to have sufficient stop losses in place that are properly placed to get the desired return on your upside. This will not allow for extreme drawdown if a reversal had to take place.
Bollinger bands are technical indicators that go into the 1980s. These are somewhat similar indicators to those of the Moving averages that have an important addition of volatility.
This is extremely important since volatility on the price is an indicator of if the probable reversal or the trend you are witnessing is temporary and within realistic bounds or a permanent change in the trend.
Bollinger bands usually have three lines where the middle Bollinger band is usually a moving average for a specified time. After the middle Bollinger band is plotted, there will be two more lines drawn which are the lower and upper bands. These are the middle band along with standard deviation.
If you want to use Bollinger Band signals for your trading, then make sure you take the following precautions before entering into the trades.
- Never distribute more to a Bollinger Band signal trade than a specified amount. This may differ based on the parameters set by the trading software for producing the signal.
- Entry decisions have to depend on the choice of standard deviation on the signal. Certain signal providers enable you to define the number of standard deviations from the mean you want signals to be generated on.
- In case of other indicators, both entry and exit levels need to depend on the prices that had been observed over the past four candles.
- Stop losses are the vital key for Bollinger band signal trading. The Bollinger bands are very helpful at the time of placing stop losses. Usually, one may plot several bands and place different stops.
The above-discussed signal types are the tip of the spear for different trading signals used by a trader. In the same way, the manner how the signals can be produced with the help of these indicators can be more involved than what has been discussed. Computer algorithms can execute different variants of the same indicators and use the latest machine learning technology to adapt with these algorithms.
So, are you interested in making the most from the trading? If yes, then the best trading signals can help you to get the maximum from it and earn huge profit soon.