It is very important for you to know when the price is going to reverse or retrace as it will be able to alert you to exit your current position before the market takes it back or it can also alert you to enter a trade to trade the reversal.
Therefore in this post today, I will be sharing with you several indicators that I use to identify possible reversal or at least a retracement. As usual, these indicators will not be able to identify reversal 100% of the time as trading is a game of probability but they are pretty accurate.
1) MACD Indicator – One of the way I use the MACD indicator to identify a reversal is its histogram. When you are in an upward movement and you see the MACD histogram shortening, it is a sign that the buyers are losing strength and a possible reversal is coming.
If you are in a downward movement and you see the histogram shortening below the water line, it is sign that the sellers are losing strength while the buyers are gaining strength.
MACD Indicator
2) CCI Indicator– As for the CCI, I will usually use the 200 mark as a sign of reversal. When the price crosses above the 200 level, I will wait for it to move back down to the 100 level before I enter a reversal trade.
If it goes below the -200 mark, I will wait for it to move up to the -100 mark before I enter a trade.
CCI Indicator
Besides the above 2 indicators, I also make use of some candlestick patterns to help me in the identification of possible reversal.
1) Spinning Top – The spinning top is made up of a short body with long wick at the top and bottom. This is usually a sign of indecision among the buyers and sellers.
If it occurs at the end of a strong trend, it is usually a sign of possible reversal.
SpinningTop
2) Railway Track – I have written a post on this railway track candlestick pattern and you can read it here. The railway track is a sign of traders getting into the wrong position and the 2 long opposite candles are formed as traders quickly exit their wrong position and enter the opposite side.
RailwayTrack
If you happen to see the indicators showing the same reversal signal together with the formation of any reversal candlestick patterns, this will greatly increase the chance of the price making a reversal.
If you have any recommendation for reversal indicators, do feel free to comment below as your input will be very useful for everyone here.
Hi,
Thanx for the valuable information. What settings are best for the MACD?
I have used 12, 26, 9 but I have been experimenting to get a better signal for entry.
Hi Annie
The default settings is great and I am also using the default setting as well.
hi KH, your explanation of all forex problem are well covered. i have two question, how to determine a strong up/down trend before it start trending and how to determine the strong up/down trend that will going to end?
Hi Zack
Before the new trend starts, it is usually trending in the opposite side. Therefore the best way to tell the formation of a new trend is by using reversal candlestick patterns. This is because they are able to tell you that a reversal is on the way.
Sir,
Am so pleased with the way you handle people’s cases here,,,
Am a beginner,still trading demo,,1[i want to know how long one needs to trade demo before moving to live,,2[after analyzing and placing my trade,the trend will reverse immediately against me,,,,please just advise me more on how to analyze and place my trade more accurately,,,,i use TF 1,5,15,30,1hr and 4hrs to analyze…thanks!!
Hi KH
For H1 what indicator is best to use.
Hi Mizan
In fact, all the indicators work for all time frame.
Hi
Thanks for updating me regularly on your postings. It has always been a pleasure and enriching time to read it.
Would like to seek your advise on this, I have seen my friends having pending orders and not having to sit in front of the screen all the time, can I check if those are for longer term traders? and what is the criteria which they look out for before placing a pending order? I guess is through support and resistance… need your expert advise.
Thanks
Regards
Edwin
Hi Edwin
You are right to say that your friends are using support and resistance. Once you have identified a level of strong support and resistance, you can then place a pending order for entry if the price actually hits that support or resistance. These is very handy if you do not like to sit in front of the computer all day long.
Thank you for this information! I am a beginner and I’ve read many explanations regarding trade but have not encountered such a good explanation as this is yours. Everything you say is simply explained and easy to remember. Thank you very much. I will subscribe on your newsletter!
Greetings from the Croatia!
Yes, it is very good. Once i notice a change of -0.0004 or more from a newly formed candle stick and its previous one while going long, i will close my position and start to sell. Also once i notice a difference of +0.0004 or more between a newly formed candle stick and its previous while going short, i will close my position and start selling.
Hi ikechukwu
Thks for sharing such an invaluable information with everyone here.
thanks so much. You won’t believe i check my mail everyday in anticipation of a new message from you. And pls, how do i adjust the input for a soscastic indicator so as to get a slow soscastic. Thank you again
Hi, thanks so much for your supports, they’ve been very valuable. When you said you wait for a trading opportunity on the 15mins and go to the 5mins for a better trade, do you mean once you just sight a trading opportunity on the 15mins you just go straight to the 5mins to place a trade? I use the macd to trade but in a different way. I make use of the macd values as a trade signal. Once i notice a difference of +/-0.0004 between the macd value of a candle stick and the next, i get ready to take my position.
Hi Ikechukwu
Yes, when I see a trading opportunity on the 15 min, I will move down to the 5 min and I will wait for a good entry opportunity before I trigger a trade.
As for your entry using MACD value, that sounds interesting. Is it good?
Sir
I am regularly reading your post,other than reading I have saved each and every explanations of your post for future reference.
Really you are JAMES BOND 007……
Hi Tamil Selvan
Thks for visiting my blog. I am glad that I am of help to you.
hi
how are you ?. thanks for your help for Forex Traders.
1. what is best Time frame ?
2. what is Friendly Indicates ?
3. do you using Forex Signal ?
have a nice day
kamal
Hi Kamal
Thks for visiting my blog. For your questions, here are the answers
1) There is no such thing as the best time frame as it depends on your trading style. For me, I like the 15 minutes chart and hourly chart.
2) I don’t quite understand what you mean by friendly?
3) I do not use any forex signal as I am able to read the chart on my own. However if you are still new, having a forex signal can be a great help.
I hope that I have answered your question and do feel free to contact me if you have any further problem.
Hi,
Please, can I know which time frame you used to trade since you use 5m and 15m to enter. Thanks for the time you are spending to attend to we the newbies. God bless you.
Hi Jacob
I use the 15 min to look for trading opportunity and then move down to 5 min to get a better entry.
Hi,
Which indicator is best to use and how many of it can one use in trading for effectiveness.
Thank
Hi Sammy
There is no such things as the best indicator as different indicators suits different trading needs. As for the number of indicators to use, I will stick to a max of 2
Great stuff!
Concise and right to the point. Easy to understand without the useless fluff.
Thank you for your generosity in sharing.
Hi Cornelius
I am glad that you like the content.
Hi
Thank you very much for you post ,they have really been very great,unlike what we even have to pay for and have paid for.
Hi KH
I hope you don’t mind me pointing out what might be an error, mate. In your outline of candlesticks, you describe what you call a “spinning-top” as a small body with long shadows. In fact, a spinning-top is a small body with very short shadows.
What you’re describing is, to the best of my knowledge, a “high-wave” candle.
Again, I hope you don’t take this the wrong way, because your web-site and emails have furnished me with some really great information, for which I thank you very much.
Paul
Hi Paul
Thks for pointing out this as this could be what other readers have in mind but did not voice out.
What you describe is considered an ideal spinning top in some books but the one with long shadows is considered as quasi spinning top in some books as it has the same effect as the one with short wick.
Hi
I just found your website few days ago & it really simple to understand & helpful to improve some of my weakness in FX trading especially few indicators which I never know before.
Like U said, trading method will not complete if we did not have proper exit rules.
IF I trade use TF 30min,1hr & 4hr,which is the best TF I need to refer before can close my trade.
Need you opinions on this concern.
thanks
Hi Aris
The best entry and exit is in the lower time frame.
Hi
Glad to view you website.I have problem when enter position.For example when open position the price is going to retrace.So, can you suggest me the right and simple indicator to know trend, price reversal, price streght and the related matters.
I still confius when news are coming out..is it possible to open position or waiting…
need your opinion about this..
thank you very much
rizal
Hi,
Can i know what time you use for entry position and what is the best indicator combination to use
Hi Rizal
I always make use of the 5 minutes and 15 minutes for entry. As for the best indicator, I will vote for MACD.