Forex traders are always looking for the best ways to increase the overall potential for profits in their trading systems. Indicators can be extremely useful tools when trading the forex market, and professional traders tend to alter the value of different indicators from their default settings — depending on the currency pairs and timeframes that are being used. This enables forex traders to do extensive research with the adjusted value of the indicator and to find the best possible settings to trade the major currency pairs in the automated forex system and other financial markets.
The stochastic indicator and the RSI indicator are two of the most widely-used indicators in the forex industry, due to the versatile performance that can be achieved with modified settings. Professional traders use the Bollinger Band indicator along with the two oscillators to trade the major currency pairs. Let us see a chart example of the three-fold trading strategy:
Figure: Trading the GBP/USD using the modified RSI and stochastic indicator
In the above figure, traders use the dynamic support and resistance level of the Bollinger Band to identify their potential entry point. Professional traders use the modified RSI oscillator which has tweaked the value of period 5 and the modified stochastic has the slowing period set to 2.Once the price reach the Bollinger Band resistance level traders look for confirmation signal in the modified indicator. If the both the indicator stays in the overbought region than professional traders open their short position.
Setting the stop loss and take profit level when trading this strategy can be the little bit tricky. Traders can either put their stop loss just above the previous candle in a case or sell signal or use the most recent swing high as their stop loss zone. On the contrary, setting the take profit is level is the bit easier since experts use the mid-Bollinger Band of the Bollinger band indicator as the take profit zone. Though the system tends to work extremely good in the higher time frame, it is highly advised that proper money management is used before taking any trade using this strategy.