Indicators

Filed under: Learn Forex Trading |

 

If you have looked into forex trading in any kind of depth whatsoever, then you are bound to have come across the plethora of indicators that are available. These include such indicators as RSI (relative strength index), MACD, stochastic, simple moving averages, and exponential moving averages, to name just a few. While some of these indicators do have their merits and uses, we should not become distracted from the most important piece of data when using these, and this is price itself. A lot of people become bogged down and too focused on such indicators – to such an extent that they forget to look what price is actually doing.

 

Figure 1. A chart with a plethora of indicators attached

Many new traders are drawn to indicators, thinking that trading has to be complicated and that if they use their big brains, they can get ahead of the crowd. But the raw fact is that all indicators use lagging data – and we all know that past activity does not necessarily tell us what future activity will be like. People use a combination of different indicators and formulas and make it a really complicated and mathematical affair. Unfortunately, trading is more about mass psychology than mathematics, so you should really study more about people and the herd mentality than about indicators.

 

Personally, I think certain indicators are useful for giving us a quick summary or picture of something. For example, a moving average can tell us the long term trend in a very visual way. The RSI indicator can tell us about divergences in momentum. So they are useful, but they are not something that I would trade off directly. For this, I use price action signals at key areas of support and resistance. Check my “Daily Trade” articles for examples and you will see that indicators really are surplus to requirements.

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