Which One to Rely On: Indicators or Price Action

Which is Right for You?

There is no doubt that majority of Forex and futures traders rely on different indicators to remain successful with their trading venture. Traders use indicators such as moving averages, MACD, stochastic, Bollinger Bands, and the list goes on and on. Do you need to analyze price action when you have information from indicators? Let us evaluate each option.

Benefits of using indicators:

There are many benefits of using indicators:

• Most of the traders rely on indicators. So there is no shortage of experienced traders who can help newbies understand any indicator.
• Just because of their popularity, most online knowledge banks have plenty of material on all types of indicators. The systems and trading methods based upon indicators are also the hot topics in most trading forums.
• Indicators instill a sense of belief and confidence in new traders who are not very sure in the beginning. Even experienced traders are looking to follow exciting new indicator based strategies even if they are not proven.

Problems use of indicators cause:

Traders follow indicators just because of their belief that indicators are helping them predict the price movement. Most of them do not know how indicators are generated and whether they can use them to predict future price.

Almost all indicators are made using old price information which means the indicators actually lag in real time. Moving averages, for example, are chart lines created by considering old price movements that can be used in various ways, but not to predict future prices. It can be very dangerous to make live trades based upon obsolete information.

Even a more serious issue is the tendency of traders to jump from one indicator to another indicator without any solid homework. When one indicator proves to be effective, traders try to use a combination of two or even more indicators to increase their chances of profits.

Another contributor to such behavior is early success for new traders. Take the example of Trevor, a new FOREX trader who is very happy because all his hard work, learning the MACD, paid off as his first four trades were majestically successful. His later trades weren’t so successful, but Trevor knows what exactly needs to be done. He needs to step up by combining MACD with another indicator and make even more money. Unfortunately, here is where Trevor got everything wrong. Trevor is overconfident, too adventurous and not realizing the fact that adding things up will unnecessarily complicate matters.

In reality, trading businesses are very simple and success can only be guaranteed when it is kept that way.

Price Action – simple and effective:

To keep things simple in trading, relying upon price action is the best scheme. The only thing a trader needs is the live price action chart and the knowledge of how to implement his trading strategy. Instead of predicting future prices by using the lagging information provided through indicators, the trader will be using the live price movement to make live trades.

The prices action behaves a little faster than indicators, so proper education and focus is required to master this skill. Most professional users adapt to use price action to remove all the clutter from their trading charts which enhances focus, simplicity and success.