Which Technical Indicators Do The Pro Traders Use When Trading Currencies?
By James Woolley
Technical analysis is basically the study of charts and charting patterns, and it is an essential tool for most forex traders. Indeed many people develop a trading system that incorporates a combination of technical indicators in order to hopefully maximise their gains. So which ones are the most effective overall?
Well it should be made clear that there is no one set of indicators that consistently produces winning trades all of the time. This is something that many people cannot accept, but the holy grail system that so many people spend hours on end looking for, simply does not exist.
Technical indicators should be treated as nothing more than a useful tool. They help to generate high probability positions but they are certainly not foolproof. For instance just because the RSI and Stochastics are both well into oversold territory, does not mean that the price cannot go even lower.
It should also be noted that your overall profitability is not correlated to the number of technical indicators that you use. Many amateur forex traders believe that the more indicators they use, the more likely they are to make profits, but this is not usually the case.
Very often you will find that the more indicators, you use, the more likely it is that you get conflicting signals. Therefore rather than confirm a possible set-up all they do is put you off making a trade, and therefore you will find that you hardly ever make any trades as a result.
This is why a lot of the professional traders just use a couple of technical indicators at most. The key to success lies with your money management rules so if you can contain your losses and let your winning trades run, then even the most basic of systems can be effective.
Some professional traders don”t use any technical indicators at all because most people come to realise that the best indicator you can use is price. If you follow price action and trade off crucial support and resistance lines and maybe use fibonacci lines as well, then you don”t really need to use any other indicators.
I haven”t advanced to this stage myself yet but my own trading system is very simple as well. I used to spend hours experimenting with different indicators but now I just trade simple EMA crossovers, and I make fairly consistent profits every week.
You will find that if you simply watch price action and stick to just a handful of currency pairs, you will soon learn their characteristics and how they move. Therefore you can do just as well by watching the price action or just using one or two indicators to confirm your positions.
Using lots of fancy indicators is usually a waste of time. Most of them will tell you the same thing anyway so my advice would be to simplify your trading method as much as possible, and focus on identifying high probability positions that generate large winning trades, and try to keep your losses as small as possible.
About The Author
Click on the following link for free forex tips and strategies, including the exact 4 hour trading strategy that James Woolley uses himself to trade the markets:
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