The last decade of trading has certainly been
interesting. The first word that I think of when I think of this past decade, it would
definitely have to “technology”. Technology has had a major influence in the forex
markets. But the question should be has technology actually helped?.
Something that is really obvious this day and age is that
we have more bells and whistles than ever before. When it comes to trading indicators,
it seems like we get a new one every hour on the hour. Even with free trading platforms
like Metatrader you can have an infinite amount of indicators. But, once again, have these
actually helped traders?
I am going to go over some of the negative aspects of
relying on indicators.
First off, they are lagging, by nature. It’s
kind of like false advertising. I’ll give you an example. Take a look at the stochastics
indicator. When two stochastics lines cross one another upwardly or downwardly, the
move has already taken place, and you are way too late for the party. But when you back test,
it looks perfect. This is why it’s false advertising.
Another thing is that most people don’t really know
what most indicators actually do. If you asked the average trader about the average
indicator, many of them can tell you how to use them on mechanical trading system. But most
traders don’t really have a deep comprehension of what purpose they actually serve. Trader
will just say “I’m supposed to buy or sell when those two lines cross each other”. That's not how
you win in the forex market.
My next question is if indicators are so useful, then
how come there are so many people losing money on the market. After all, these indicators are
supposed to be 100% mechanical and useful, then why is it that only 5% of the trading public is
making money. This is something that you should think about.
The truth is you are only as good of a trader as your
indicators are. You are basically going to sink or swim with what your indicators are telling
you what to do. So, you better hope that your indicators are having a good day.
Lastly, you don’t even have to look at the price to
trade with indicators. Price action may be the most important aspect of
trading the market, and you don’t even have to notice what you are doing. All you are doing
is waiting for your indicators to align.