There are many indicators that can to be used for as a tool for trading, namely RSI, MACD, Stochastics, Bollingerband etc. Some traders have their own favourite indicator which they think its most useful to track buy and sell signals. But have they been profitable in their trades? No, for most of them.
Over my years of trading, I had found that that different products or currency pairs have different behaviour and characteristics and so different products or different currency pairs are suitable for different indicators. Using your favourite indicator to track your products may not be a good strategy.
So the best way to find out which indicator is the best for particular products or currency pair is to do a back-testing.
Normally I would use a period of 2 years for my back-testing. The period used cannot be too short or else the back-testing will not capture all the different senario in the trading world, but the period cannot be too long either as senario beyond 2 years may not apply in today’s world, so I think 2 years is the best.
I had done back-testing on oil. See here for the result: http://allaboutoil.blogspot.com/2008/05/back-testing-for-oil.html
The result shows that Comm Channel is the best indicator to tracking oil trading.
When the indicator signals buy when oil is trading at US$123.58, I took the opportunity to buy 1 lot of super mini oil contract.
And when the indicator signals sell, I took the opportunity to sell and gain a profit of US$1292.
This can be applied to currency trading as well. I had done back-testing on the major currency pairs, and found out that Bollingerband is the best indicator to track AUD/USD.
After I find out that bollingerband is the best indicator to track AUD/USD, trading AUD/USD becomes a systematic process to me:
1st. Bollingerband must signal buy or sell on the daily chart.
2nd. I use 10 min chart to look for entry level.
3rd. Find a level to place my stop.
4th. Raise the stop if my view is correct to protect my trade from any losses.
Using this system I had bought 100,000 AUD/USD at 0.9526. And I had sold off 100,000 AUD/USD at 0.9559, earning a profit of US$330.
I often post buy and sell signals from my proven indicator into my websites. Readers may want to consider open a trading platform for trading forex or super mini oil before the next signal comes along.
To open the account, click here and click on the logo inside. Choose Standard account in account opening, Mini account can only be used for trading mini forex. Demo account is available.