04 Jul

Beginner traders start learning how to trade Forex and became overwhelmed by different trading strategies during their trading journey. There are traders who trade only with the naked chart or also known as Price Action Trading, there are also traders who utilize the news (fundamentalist) and there are traders whose basis in their trade is their Indicators. In this Blog, I will not teach you how to use the different types of Indicators but rather show you why you should not use it.

So, what is an Indicator? Does it really work?

Indicators are technical analysis tools that are usually used to predict the price movement in the market. Does it really predict the price movement? We’ll see!

As of today, there are hundreds of indicators out there that utilize by Forex traders especially the beginner traders, they believe that Indicators were there to guide them on their trades to know when to enter and exit a position.

Indicators can be classified as,

  • Trend Indicators
  • Oscillators
  • Lagging Indicators
  • Leading Indicators

Trend Indicators are used to visualize the big picture of the currency trend. The simple logic of a trend indicator is that a trend of the market is said to be in a downtrend if the current price is below the trend line, and uptrend if the current price is above the trend line.

It is the same in Moving Averages, almost all Trend Indicators behave the same way.

Oscillators are technical tools that are used as a basis of when to enter and exit a trade. Oscillators are composed of ranges such as overbought range and oversold range. The logic of using oscillators is that when the price comes to an overbought range, the price is expected to decrease, and when the price is at the oversold range, it is expected to go up. The basic of oscillators applies the idea of supply and demand.

Different oscillators also work the same way. They just differ in overbought and oversold ranges.

Leading Indicators, these indicators are known to give their buying or selling signal just before the price action moves. (It is often use in Price Action Trading strategy) On the other hand, Lagging Indicators only provide a signal after the price moves.

Examples of Leading Indicators are,

  • Support and Resistance
  • Trend Lines
  • Chart Pattern

For Lagging Indicators,

  • RSI
  • MACD
  • CCI
  • Stochastic
  • Ichimoku Cloud
  • etc...

If you will observe Lagging Indicators by looking on historical data of every currency pair, it looks very profitable, but in reality, when you use it on your live trades, it will only move after the price moves, meaning, the data shows by these indicators only depend on the price action and is not really giving you any signal to buy or to sell. I repeat! It only moves after the price moves which is useless if you ask me.

Famous indicators that are known to traders are,

  • Relative Strength Index or RSI
  • Bollinger Bands
  • Stochastic Indicator
  • Ichimoku Cloud
  • Moving Averages
  • Moving Average Convergence Divergence or MACD
  • Parabolic SAR
  • and many more....

If you find these Indicators profitable, well, Good for you! But it will not do you any good in the long run because price action moves the indicators.

There are hundreds of indicators that you can try and you can leave your comment here if there is an indicator that is really profitable.



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