If a survey were conducted among Forex and Futures retailers and one of the questions was: “What method or system did they first use to negotiate?” Without any doubt, the vast majority of traders would say that they started with indicators such as moving averages, stochastic, MACD, Bollinger Bands, and the list would follow.
I’m very lucky to be able to talk and help traders with their trading objectives every day, and the list of methods and systems with indicators that I find are endless. You just have to look at any Forex forum to see how many of the new traders are scouring all the “Forex Systems” threads for the latest indicators, because people use new indicator systems whenever they can (not necessarily the most profitable).
The reason the indicators are so popular is that they feed into the new trader’s belief that the indicator can help predict where the price will go. In order to understand the indicators in the right way traders need to understand how the indicators are constructed and project their information. 98% of all indicators are built using old price information to make a late indicator. For example, a moving average is created using the old price to make a mobile line that traders can use in various ways.
The main problem with indicators is that they are always created after the event and traders are using previous information to guide them. In other words, they are using late information to make live trading calls.
A Dangerous Trading Mindset
The other major concern with indicators is that traders rarely stop at an indicator and that’s often where things begin to adjust to the trader mentality. A novice trader will normally have some winners with their first indicator. It doesn’t matter how many losses the trader has suffered or even if they terminate their account. What the trader tends to remember is that the first indicator helped him to make a winning transaction and above all the trader will remember that this first indicator helped to predict correctly the direction of the price. All the losses and bad thoughts have been completely relegated to one side because the trader has already moved on to what comes next and has already solved EXACTLY how it will do everything again and much more.
The trader often thinks: “If an indicator helped me to perform a winning transaction, then two indicators will surely help me to predict even better the direction of the price” and then when two do not help, three have to be even better, etc., but the problem is that, Like so many things in negotiation, this just doesn’t work out this way. Human beings in everyday life are programmed to think that anything worthwhile can’t be simple and new traders often spend a lot of time trying to make trading complicated by adding fantasy indicators for their trading thinking that the more indicators they use, the better they can predict the direction of the price, but this is the exact opposite of what traders have to do.
This mindset is a trap in which it is very easy to fall because the trader may find himself in the usual situation of adding more and more indicators like him begins to have more and more losses, with the erroneous mentality that indicators will help you predict the direction of the price. What ends up happening is that the trader, from the beginning of his trading trip, uses so many indicators in his charts that he ends up in a tremendous mess and in a state of paralysis of analysis. The trader finally ends up with many indicators in his charts, and they all tend to contradict each other and the trader can no longer operate, as he is very confused about what to do. So what does the trader have to do?
The simplest and least complicated method of negotiation in the world is the action of price. All that is needed to negotiate according to the share price is a chart of the stock of the blank price and its method of negotiation. The main difference between the indicators and the price share is that with the indicators you are using old and late price share information to try to predict the future, but with the stock price continually reading the live price as it is being printed on the chart.
There are no indicators or external influences at all that are used to trade according to the price share. Basically trading according to the share price is the ability to read the price and make trades on any chart, on any market, in any time frame, and without the use of any indicator at all. Below are two charts, face-to-face, with the price share chart on the left side with just the raw price share and the graph full of indicators on the right.
Training and commitment are required to succeed by operating on the basis of price action as with any other method of trading or worthwhile systems, but the reason why trading with the share price is so successful, and why many professional traders use it, is because it simplifies the negotiation process and the mentality required to be profitable.