Using indicators in forex trading

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“Should I use indicators in trading? And if so, which one is better? “

In order to understand forex indicators, first of all, you need to determine the understanding of the market. In fact, the processes occurring in the market are primarily the result of human activity (large players on the stock exchange), and a person who does not use any complex mathematical formulas to solve his problem, but, as you know in trade, “the cause is equal to the result.”

Therefore, I consider it absolutely inappropriate to use any exotic indicators like Ichimoku and the like. For convenience, we will divide all existing forex indicators into two large groups:

  • forex indicators of type F (Future), foresight (processing of all available information).
  • forex indicators of  type R (Real), current processes (binding to one group of parameters)

I think that it will not be news to many that it is indicators of the R type that are most common among users. Moreover, many professional schools of traders and even books welcome these indicator systems. This type of indicator includes moving averages, overbought and oversold market indicators, trend lines and channels, and many others. Unlike those listed above, there are very few indicators of type F, and there is only one such indicator in the standard MT4 set, and this is MFI.

Figure, click to enlarge: 

Let’s define the value of the information that the standard MT4 indicators provide us. First, let’s consider the most important indicator in the standard arsenal – Moving Average (moving average line). This indicator tells us the average price based on a simple arithmetic mean, what can the average price give us? Essentially nothing. We do not even have a close idea of ​​the processes occurring in the market focusing on this indicator, it indicates only a trend, and the trend, as you know, is not a constant and often false concept.

Further, trending channels that have become widespread among users . The price reaches the channel border, the tension of the channel trader grows (he subconsciously expects the price to reflect) and the price leaves the declared range a little, as the trader immediately opens an order, judging by the trend, which is wrong, the price reverses and falls into the corridor again.

The next time the price leaves the range, it will not return to it, and the trader will wait for this moment, losing his money to a smart group of professionals. I assure you without unnecessary irony that the use of indicators from the standard MT4 set is not the key to success. 

In order to trade profitably, you must first of all understand the processes occurring in the market, which are perfectly interpreted by voluminous methods of analysis. Including a visual assessment of what is happening, in this case the standard MT4 set can be used as a means of visualizing a future mistake of a trader from a group of beginners.

Forex indicators type F

As I have already noted above, indicators of the R type are built on separate chart elements, in other words, everything that is tied to one group of parameters (for example, in the case of MA, this is the price, in the situation with Volumes, it is only tick volume, and so on) refers to this type. Indicators of type F include complex processing of all available information (prices and volume + processing of relationships between open, close, volume, high and low prices).

Only thanks to this approach can the required minimum of useful information be achieved. Many professional exchange terminals such as ROX, Intwaydirect and others provide only volumes (real contractual amounts) and price, and at the same time they do not cease to be the most demanded trading platforms.

Naturally, they can use the entire set of technical analysis tools, however, the chart window with volumes is a standard and recommended graphical setting.

An example of how it shouldn’t be:

Normal work space:

Conclusions about indicators in forex trading

1) The fewer Forex indicators you use, the easier it is to interpret their readings.

2) Statistics show that 0.1% of traders who constantly and profitably trade use only 2 indicators: the first is the author’s, the second is the volumes!

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