In today forex faq, I am going to answer this question that is brought up by one of our fellow traders here in my blog.
Below is the question
Hello, Do you think indicators are useful for trading forex?
I have heard of price action trading and frankly speaking, I do not believe that anyone can make profits from trading forex simply by reading the candlesticks without any indicators.
There are basically 2 main types of indicators in the market namely leading and lagging indicator.
For indicators that are telling us the things that have already happened is known as lagging indicators. So you may be thinking what is the purpose of using such indicators that can only tell us things that had already happened.
Lagging indicator are very good for trend identifying as you need such indicators to tell you that a trend has been established.
In fact I have written a blog post on lagging indicator before in this blog and below is the link to find out more about lagging indicators
The leading indicators are those that can help us traders to predict the coming movement or where the price is going to move.
The Fibonacci extension is a good example of leading indicator. We can use the extension as target profit exit point as we know that the price will slow down once they hits those levels.
Another example is the MACD divergence as it can tell us in advance that the price is going to move in the opposite direction soon. However I am not saying that you will enter a trade once you see a divergence. You must have a set of trading setup conditions plus extry signals to compliment this divergence.
Do note that you can’t trade currency simply based on the signal of 1 indicator. You will get your account wiped out in no time.
A strategy must have a pre-trade condition to tell you that a trade is coming, a false alarm trade validation to help you filter out those false alarm losing trade, a precise entry signal as well as a precise exit plan.
This may need the help of a few indicators as well as support and resistance levels plus the candlestick patterns.
Below is the link to the blog post that I have written about the leading indicators some time back
From my experience, it is closed to impossible to trade without an indicator and it is also very hard to trade with more than 3 indicators. Therefore I will suggest that you guys trade based on 2 to 3 indicators plus those trading conditions that I have stated above.