Here is the best indicator setup for 1-hour chart. Renowned among traders worldwide, you can apply them either separately or together.

There are lots of ways to successfully trade the 1-hour chart. A responsive trading platform, good money management, and many more. However, employing the best indicator setup for 1-hour chart is the first step any trader should take. 

The best indicator for 1-hour chart is actually the indicator that best fits our trading style, and we have too many options to choose from. Some professional traders take the time and energy to create their own holy grail indicator. Most retail traders, though, prefer to use the ready-to-use technical indicators provided in their own trading platform.

Looking for the best by yourself might be time-consuming, as trading platforms usually come with dozens of technical indicators. So, here are the two best indicators for a 1-hour chart that you can apply either separately or together.

 

1. 20-period Moving Average (MA)

Anyone who has examined a price chart is aware of how drastically prices may change. By using the average price over a number of periods consecutively, Moving Averages strive to smooth out this wild price movement. The outcome is a smooth line that is overlaid on your chart and follows the candlesticks as shown below.

Best Indicator for 1-Hour Chart - Moving Average

The smoothed line helps identify the market trend when using Moving Averages. If the line slopes upward, it is an uptrend. If the line slopes downward, the price is in a downtrend. As such, you can start to buy when the candlestick chart starts to rise above the line; or sell when the candlestick chart crosses the line downward.

We can also apply two or more Moving Averages on the same chart. In that case, we can seek trading opportunities by looking for crossovers between two or more Moving Averages. Learn more about MA crossovers for intraday trading here.

 

2. Relative Strength Index (RSI) with Periods of 11

Relative Strength Index (RSI) is an oscillator that swings between 0 and 100. It shows up as a line chart in the subwindow under the price chart. See the indicator below.

Best Indicator for 1-Hour Chart - RSI

RSI is commonly applied to seek trading opportunities by identifying overbought and oversold areas. The overbought area lies beyond 70, while oversold lies below 30. 

When the RSI rises above 70, it signals an overbought condition (yellow area). You can sell the asset once it starts to fall back below 70.

When the RSI falls below 30, it signals an oversold condition (pink area). You can buy the asset when it starts to climb above 30 again.

Another way to use RSI is to identify divergence. This one is a little bit trickier and you would need more experience to find it. Learn more about how to trade using divergence here.

 

Putting It All Together

Moving Averages aid in the detection of trends and trend reversals. Meanwhile, RSI indicates the momentum of price movements; when the momentum strengthens and slows. They work well together because of their different purposes. See the example below.

Best Indicator for 1 hour chart - combo

For example, a conservative trader may hesitate to buy GBP/USD when the RSI moves upward in the first blue circle. This is quite reasonable because RSI often produces false signals. However, there is no reason not to buy when you see that candlesticks have crossed the MA line upwards as well in the next few hours.

In the second blue circle, the RSI shows a sell signal as it falls below 70. Along with it, there is a divergence (see the bright red lines on the screenshot). Candlesticks form a new higher high, while RSI falls to a lower high. It means that the GBP/USD rally is losing momentum. Although MA has not shown any signal at that point, the time is prime to enter a short position.

Candlesticks then come back up above the MA line in the next few hours. At that point, you should close your short position. Few profits, but it is better than being hit by an unexpected reversal.

Subsequent developments show that it is not a reversal; instead, a new divergence emerges (pink lines). Candlesticks rise to a new higher high as RSI moves lower. Do not buy in such a situation; instead, seek a new opportunity to sell.

 

One of the most problematic drawbacks when trading with indicators is the false signals. For Moving Average, we have discussed this particular matter in Are Moving Average Fakeouts Tradable?