Indicator setting set ups are important for traders to know in relation to their trading style and their trading strategy.
To be a successful trader whether it is in forex, stocks or commodities it is not only essential that you understand and use technical indicators properly but also that you know how to set these indicators up correctly. Nowadays all trading stations have embedded in them most of the common indicators with default settings which in the main are the most efficient. Some however you will need to change to your particular trading style.
Mastering Indicator Settings:
The Simple Moving Average indicator is one of the most common indicators used by traders today. It is a lagging indicator and needs to be set up efficiently if the trader is going to trade successfully using it.
If you intend using just one Simple Moving Average line then this should ideally set to 10 time periods. This setting avoids most of the whip saw effect and false signals that a fast indicator would give. A longer setting would lag too much behind any change in trend direction and would not be such a profitable indicator. When using one SMA wait for the candles to be completely free of the line before you open a trade.
If you trade using the SMA crossover you can use either two or three SMA lines set at different time periods. The ideal settings for two SMA’s is a fast SMA set at 5 periods and the slower SMA set at 10 periods. In this type of set up the trade is entered when the faster SMA crosses the slower SMA and it is exited when it crosses back the other way.
Using three SMA lines the set up for the fast and medium SMA are set at 5 and 10 periods while the third and slowest SMA which acts as a support and resistance line is set at 20 periods. When using this set up you should wait until both the 5 and the 10 SMA lines cross the 20 SMA line giving a buy or sell signal before making a trade. These types of set up are used for short term trading strategies rather than long term trading strategies.
For long term forex trading strategies the SMA’s should be set at longer periods. The fastest SMA is best set at 50 periods and the slowest SMA at 200 periods. Once again a buy or sell signal is given when the fast SMA crosses the slow SMA downwards or upwards respectively. The Exponential Moving Average set up are the same as the SMA set ups, however there is no evidence to suggest that the EMA is any more profitable than the SMA. The EUR/USD hourly chart below shows a short term SMA trading set up.
The other popular indicators such as the Relative Index Indicator and the Stochastics are set at 14 periods for the best results whilst the Moving Average Convergence Divergence is best set at the 9,12 and the 26 period EMA for the most accurate buy and sell signals.
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