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Forex Indicator Testing Tips & Shortcuts

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By now you all know that Forex trading with indicators is by far the superior way of trading. Forex is not the stock market and most of the strategies, indicators, and tools are not going to be useful in Forex trading. When you step out in trading waters you will realize there are thousands of indicators out there that can be used.  Unlike the price action trading, indicators, if everything is done correctly, and have been tested and trusted already, will give you a crystal-clear signal every time.

There is no guesswork with indicators and you can customize settings. Adjust it in the way you like it and make it better than it already is. This cannot be done with Support and Resistance line, right? The best option is that you can combine indicators, and by this, make better results. Everything is going around choosing the right indicators and combining them together to make the system more accurate. One stand-alone indicator will not get anyone anywhere, what is recommendable to do, is to create algorithms – the system of rules to point out to the same signal at the time, which can be used and traded upon.

We will focus now on the ways of testing Forex indicators and choosing adequate ones.
As we already mentioned, there are thousands of indicators out there that can be used. Also, now and then new indicators are made by programmers. In order to choose the right ones, one would need an awful lot of time to test each and every and to make the right choice. This is actually not a bad way to do it, don’t get this in a wrong way. It would even improve your skills, however, to help you shorten the process we chose five criteria points.

An indicator that does nothing other than following the price.

There are a lot of indicators out there that do just this – follow the price. As if you took a pencil and just tracing the price – honestly, this cannot help at all. These kinds of indicators are just mirroring where the price is going and it is not very useful. What you really need from the indicator is to show you what you cannot really see – foreseeing what is not yet visible with a bare eye.

Indicators that do not even work in the example.

Most of the programmers that are making indicators are not traders. Many indicators that are for sale cannot be tested before you buy it and then you need to assume how they work. What would be very useful is they could give a snapshot to a user of a real successful example – where a certain indicator worked and provided the correct signal. If it happens that even in the example the indicator does not meet what is expected and in the way it is expected, it should be cast away without even trying.

Too many signals.

It is not easy to choose between an indicator that gives quality signals and ones that give more signals. If this poses a dilemma to you, a suggestion is to go for quality over quantity each time. In truth, it doesn’t really matter which one you choose as long as it brings you money at the end of the day.

Indicators that give you a buy signal and a sell signal way to quickly, one after another, it would be best to avoid it. If you happen to use this kind of indicator, even in combination with other indicators you may take too many trades and exiting them too soon.

Indicators offering Support/Resistance levels of any type.

The way some traders believe is that Support/Resistance levels are completely non-useful based indicators. Even if it is dynamic support and resistance – meaning it moves, it doesn’t stay fixed, it is still not very useful according to them. What these indicators do is trying to predict the place where the price is going to break out or reverse and it is not really something that can be predicted. It is also good to know, if you are following this kind of strategy, that all indicators which contain words like ‘pivot’, ‘gann’, ‘channel’ are most likely also part of this category.

Indicators you cannot adjust.

If you happen to use these indicators, you know that every once in a while, it works perfectly on default settings. For example, Heikin Ashi – nothing can be changed or adjusted in this indicator. Some serious professional traders think that every indicator that gives you a possibility to improve it – personalize in a way, is going to be better than the one that doesn’t.

These five points should offer you some guidelines on how to choose and test indicators in the future. You can always come up with your own selection, which can take you a lot of time to do it, but it would probably be very useful for improving your trading skills.

Benefits of following the price action.

There are also traders out there that strongly believe that indicators are just a waste of time. These kinds of traders are mainly Price Action traders, trading with clean charts – which are very successful in what they do and wouldn’t change it for any of the indicators. To them, indicators are just a clumsy way of interpreting what they can already see on the chart using Price Action methods.

A lot of new traders are coquetting with both ways in order to find their comfort zone and a method that will work for the long term. According to these guys, a clean chart with minimal indicators represents a clear mind and way of trading on fundamental price movements in opposition to the trading with indicators. Accessing a clean chart may seem simpler and non-demanding and can also be a lot less stressful than having to scan multiple lines, levels, and bars that indicators may show.

While a clean chart would present price information upfront, a chart with indicators will often show other information on top, or even worse, can show compress or stretch actual price information on candlesticks or bars, leading you to the wrong appearance of volatility levels and moment relative to the existing trends.

We must admit that a cleaner chart also gives fewer filters that you are potentially looking out for, allowing you quicker decision-making without getting distracted by information on another window or overlaid on price information. This can improve your efficiency. Just for this method to be applied correctly, your mindset needs to be sharp, equipped with enough years of experience reading the charts and mastering Misk Management.

So, to summarize, the major benefit of trading price action is the simplicity factor. Top trading professionals are often found trading with totally clean charts that allow stress-free and comfortable trading environments that ultimately contribute majorly to their trading success.

Bottom line is, as you may have realized by now, trading with or without indicators is a completely personal decision and depends entirely on the trader. On what kind of trader you are, your own circumstances, risk appetite, experience, and comfort level.
It is impossible to categorize either approach as categorically good or bad, but depending on your situation, choosing one over the other may contribute majorly in determining your success as a trader.

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