Lesson 3. Forex Trading. Combining technical indicators / Fractals and Moving averages
🔻 Description and useful links below 🔻
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Combining several technical indicators to confirm a previously received trading signal is a well-known method in technical analysis. So now let’s look at a real example of how the received trading signal from the moving averages technical indicator is confirmed by the presence of an important resistance level, which we determined using the fractals technical indicator.
In the graphical example, we can see that at point C a signal from the intersection of moving averages with the period 50 and 200 was generated, which eventually led to the appearance of all conditions: the location of all three moving averages from the slowest to the fastest, and of course the closing of the candle under the fastest moving average – MA 20.
But in order to confirm the received signal to sell at point C, the trader added another indicator – fractals.
As a result, at the moment when the trader received a sell signal from the intersection of the moving averages, at point C, the price was under the resistance area formed by the presence of fractals 1, 2 and 3. This area, marked in yellow, is essentially a mirror. As a result, the trader received two trading signals from completely different technical indicators, indicating the ability of the price to continue to decline along the trend.
Accordingly, the trader confirmed the received trading signal with an additional technical indicator, which allowed him to significantly reduce the risks of opening a trading position.
At the same time, I note that confirmation of one trading signal by other technical indicators often leads to the fact that the trader misses the opportunity to enter the market at the most beneficial price. But as practice shows, it is better to earn less in one particular transaction, while significantly reducing the risks. Since this leads to an increase in the profitability of the entire trading strategy, by reducing the number of unprofitable trades opened on false trading signals.
In order to learn this material better, you need to open a trading terminal and find trading signals received from one of these technical indicators in the history, then add a second indicator to the price chart. This will allow you to see how often trading signals without confirmation are false and, accordingly, you can easily calculate whether it is profitable for you to check the received trading signals from your trading strategy with additional technical indicators.
This completes the next video lesson. In the next section, I will talk about a technical indicator like the MACD, which will eventually free the price chart from two moving averages.
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