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in Paul's Musings - 19 Jan, 2012
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How to trade properly in #Forex get rid of those damn indicators!

During the course of what I do here I look at lots of charts  from clients .

Mostly I’m looking at them to help a trader understand why they are losing money consistently, trading the forex market.

So I ask them , why do you have RSI on the chart, what is it telling you ? Or perhaps what are those stochastics doing there with those moving averages?

The answer most of the time is “well I sell when the RSI is above 70 or buy when the RSI is below 30” . So I ask what does the RSI actually mean ? Very few seem to actually know .

Similar reply comes when we talk about all the other indicators on their charts .

Take a look at the chart below :

EURUSD RSI Sell Signals ?

EURUSD RSI Sell Signals ?

Now lets add a stochastic maybe another indicator would have  kept  us out ?

EURUSD Sell Signals With RSI and Stochastic

EURUSD Sell Signals With RSI and Stochastic

It didnt and another trader loses out due to the lure of the indicators.

What you generally find is that the one time (if ever) there was actually a signal provided by indicators that could have worked out you probably would not have taken the trade because you got stung so badly on previous occasions . So really if you are going to trade like this you have to take EVERY trade that is signalled as one of them is surely going to work out . In the long run your account will be drained and you will be emotionally scared. So you then moved onto the next big thing !

This next big thing might well be that $99 system that you found in your email spambox. so you take a look , the website looks convincing they even posted a statement .

(Its actually just a marketing catch page not run by a trader at all)

Cool so you shell out $99 and guess what , this one wont work either because really all it is doing is indicating pretty much the same as before but this time someone has done a bit of coding to make lots of pretty red and green lines .  You lose .. again.

Im sorry but the only way to make money in the markets is to learn to trade using price action to  identify reversals in trend and possible continuations in trend.

Oh and you need one other thing … Patience !