Forex Technical Indicators
The majority of Forex traders today, use Forex technical indicators to trade with. If you currently use indicators with your trading and are struggling to make a consistent profit. Then, you're in the right place! So why should I remove Forex technical indicators?
You should remove Forex technical indicators because they don't work in all market conditions, such as trading robots. Indicators can also distract us from what's really happening on the chart, by trading the indicator and not price. Technical indicators can also over complicate your trading, so removing all indicators is going to improve your ability to not over complicate it.
So what you need to do instead is remove all indicators and start to trade just with price action. In today's trading lesson, I'm going to share with you why I removed all Forex technical indicators and why you should too.
Read on and find the problems indicators caused me with my trading and why it can help you too...
Using Forex Technical Indicators
Technical indicators have become one of the most widely talked about topics, with trading the Forex markets. It doesn't matter if your'e just starting out or you have been trading for some time, Forex technical indicators are a common theme.
But do they really give us an edge with trading?
With so many trading platforms now available hosting an infinite number of indicator combinations, do you really think you could find something that works?
Take the MetaTrader 4 platform, the chart below taken of the platform being one of the starter templates that is on offer to new traders. It's no surprise most new traders get so confused with using Forex technical indicators.
We'll, if your journey with Forex trading is anything like mine. I'm sure you will very soon decide to ditch the idea of using indicators for those buy and sell signals.
Don't get me wrong, there's nothing wrong with keeping back a few which are worth keeping, just as I did. But the majority of indicators, just clutter and confuse the new trader.
The fact is, everything you really need to trade successfully is already on the chart in front of you. All that is needed is for you to understand how to read price on the chart.
In this post today, I will dive into why I actually decided to remove all indicators from my charts and what I use in their place. As usual, be sure to leave any questions or comments at the end of the post.
1. Indicators Don't Work In All Markets
When I talk about how Forex technical indicators don't work in all market conditions. I'm looking more towards those trading EA's or more known as trading robots!
As a new trader I'm sure you have come across one of those sales pages with a marketer selling you an expert advisor.
What's the number one thing all of these sales pages have in common? They all advertise how their trading robots have a high win rate. Reeling in new Forex traders expecting to be profitable from day one.
Have you ever looked at one of these sales pages and uttered the words within your head-
"Can this really make high % gains like this?"
I've never personally understood why these marketers felt the need to show such high win rates on these trading robots.
Especially when it's not necessarily to be profitable with trading. In fact a 50% win rate can make any trader long term profitable with the correct money management. So how do these marketers achieve these high win rates, especially when they also advertise their results on a reputable platform like Myfxbook.
That's a good question, and I will tell you exactly how they do this. Because the developer knows how easy it is to reel in new traders to the idea of just setting up a trading robot and leave it to bring in the pips.
They design their EA's to work directly with only one currency pair. More so, they will also make this EA to only work in a pacific market condition.
Yes you guessed right they manipulate the results!
So the expert advisor results look great, but in reality they are dependant on the currency pair and market condition. Most likely they have made it dependant on a market condition like a range bound market or even a trending market.
I hear you saying, "what happens when that market condition changes?" You guessed it the trading robot fails miserably!
It will stop performing as expected and as promised by the developer. Now that trading robot you paid hundreds of pounds for is left sitting on the shelf. Once again you go searching for another profitable EA with even less money than before!
Don't get me wrong out of all the EA's that will fail miserably there will be one or two that are legitimate. If there is one thing you take away from this post is the majority of Forex technical indicators will be dependant on market conditions.
If it works in one condition, you can bet it won't in another and eventually blow your trading account! This brings me to my next point, what isn't dependant to market conditions.
Price action like basic candlestick analysis and support and resistance trading. Which you can read more about by heading over to my basics of trading page by clicking here.
With a sound strategy based around price action, even the use of price patterns, will serve as a very profitable indicator over the course of your trading career.
So why do most traders go down the route of trading using Forex technical indicators and not price action. Because indicators distract us from what's important!
2. How Indicators Distract Us
Being a currency trader, the main goal is to obviously look to buy or sell a currency to make a profit. With indicators this in fact distracts us from doing just this. Even when I started out, I got tempted by indicators.
Instead of buying or selling a currency, I was dependant on buying or selling the indicator.
What do I mean ?
Of course, I was technically selling one currency and buying another, but only when the bunch of indicators told me to.
The price chart beneath the indicators was transparent to me. It could have been any currency, I didn't care! I wasn't acting as a real trader back then, we'll not as a trader to be profitable in the long run. Eventually causing me to lose all my account if I continued.
Without the right training, I thought back then this was the right way to trade.
I was purely relying on a bunch of indicators to tell me what to do! Following what everyone else was doing, "following the heard". Thankfully it did help me want to find something better. Which put me down a path to learning to trade the right way!
Back then using indicators didn't allow me to really understand how the markets actually moved. How price flows within key market levels (support and resistance). I was just following lines across many different indicators.
This placed me onto a path of learning to read price action. The best leading indicator you will have trading the Forex markets. Without a good grasp of how price moves within a currency would be a mistake!
What would you rather be trading with, "a leading or lagging indicator?"
Don't get me wrong, not all indicators are bad. Even I've kept back a couple to assist me with trading a strategy with price action.
More on this later...
3. Forex Technical Indicators Over Complicate It!
Trading the Forex market to be profitable and consistent doesn't have to be complicated. But as traders we still make it more complicated then it needs to be!
Take that picture of the MetaTrader chart I posted at the top of this post. It's no wonder new traders get frustrated with trading when using over complicated charts with cluttered indicators.
Further more not seeing consistent profits after trading for a few months.
What does the typical trader then do?
Jump back, looking for another indicator strategy to make them consistent profits. Going round and round in a viscous circle not getting anywhere! I know your pain, I have been in that viscous circle myself.
4. The Issue?
With any new endeavour it takes time to process and learn something new. Trading Forex is not different, with some traders who pick it up in a few weeks with others a few years.
For most will fail without the right training!
The main issue with using a Forex technical indicators strategy, trying to find a solution to a problem is like trying to find a "needle in a hay stack!"
The problem falls when a trader has more than one indicator within their strategy. Lets say you trade using a moving average cross over, and a stochastic for the well known oversold/overbought zones.
After a few wins, you get a string of losses in a row, typically at this point a trader will want to improve the strategy. So they start to see where it can be improved, was it the moving cross over or the stochastic setting that caused the losses?
Perhaps even adding a new indicator will improve it, with thousands of combinations of indicators it's no wonder some traders fail and give up. I know your pain, I went through the very same when I started out.
5. The Solution
Sorry if I come across blunt here, but just remove all indicators from the charts! This is the only way a trader will untangle the mess within the charts and not to mention the psychological impact it will have.
You can add a few back later again, but not until you've had the right training and understand how to read the only leading indicator on the charts Price.
Take it from me, until you have a better understand of reading price action, the last thing you need is a indicator! After 10 years of trading the markets, I found out the hard way and you don't have to.
Adding Forex technical indicators before being able to read price action is a mistake!
If you wish to get a head start with your learning, and understand how price truly moves on the charts. Then you should check out how you can trade naked heading over to my course page by clicking here.
6. The Psychological Aspect to Trading
The Psychological Aspect to Trading...
Touching more on what I said above with the psychological impact indicators can have with your trading.
There is a reason indicator based strategies don't last!
In a nutshell psychology is what drives and moves the markets. All you need is all the traders around the world and ask them the question "do you think the market will go up or down?"
It's all dependant on each and every traders mindset, at the end of the day all we are doing is deciding if we think a pair will go higher or lower. An example of the psychological aspect, is lets say we have the GBPUSD currency pair approaching a long time level of interest.
A level of resistance, where the market has respected in the past. An obvious level for where traders will react to. Everyone will see this same level across the world, making this a level of importance. Which will have a reaction when price reaches it.
It doesn't matter what Forex technical indicators you use, like MACD, stochastic or even a moving average cross over. Those key levels of support and resistance are always going to be there for everyone to see and use on their charts.
This is where using indicators will place you into hot water!
Back to the hundreds even thousands of technical indicator combinations that a trader could use. The indicators one trader uses will be telling them one thing, while other indicators telling another trader something completely different!
If you are using price action, with the level of resistance on the GBPUSD example above you won't have the variables as you would with indicators.
In short what ever phase the market is in, the psychological aspect of the support and resistance levels with price action will always tell the real story of price.
That's all a trader needs to become profitable!
7. Forex Technical Indicators I Use
Yes, you read that title right, even though I trade price action I do still use a couple of Forex technical indicators. It might seem a bit hypocritical, after telling you to remove all indicators. But let me explain why and how I use these two Forex technical indicators.
The two indicators that I use with my own trading in combination with price action are two exponential moving averages (ema's).
I don't use these with the usual cross over for an entry, instead to catch momentum moves within the market. When combined with price action, they give me an added edge that I will be trading with momentum.
Without momentum on your side with a trade, it may fizzle out and end up going no where, or even worse as a loser. In a nutshell using these two ema's will stop me buying in the market when there is no momentum on my side.
Another use with the ema's will keep me from buying too high or selling too low. You see, I will look to take the price action trades also of the dynamic zone within these ema's.
On the USDCHF chart example below, I show the use of the ema dynamic zone with taking trades with the trend and momentum.
Wrapping It Up
To become a great price action trader and give yourself a career in Forex trading, then removing indicators is a must!
Otherwise, you will end up spending a majority of your time trolling through the thousands of Forex technical indicators than rather learning to read price on the charts.
I have already explained within this post the time it will take for a trader to troubleshoot their way through to finding a working indicator based strategy.
Your time would be much better spent learning to trade price on the chart, with reducing your learning curve to becoming a great trader. If you still feel your passion with trading the markets is to use indicators then that's fine, just make sure you learn some price action trading skills.
Who am I to tell you not to, just make sure you keep it simple and do not over complicate it with using indicators.
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