Technical indicators have become a favorite of new traders these days. They can range from a simple MI to a complex array of algorithms. It does not matter whether people are trading stocks, futures, commodities, or any other market. Using these has become common. However, are they really as safe and useful as you think they are? There have been scenarios when indicators have ruined trading, and you need to know about them. Let us now dive into the reasons why forex trading can go wrong with technical indicators.
Technical indicators may not let the trader focus on the critical matter
It is obvious that currency traders focus on buying and selling currencies. Now, you may technically buy a currency and sell another, but you are not really buying and selling currencies while using indicators. You are merely making all decisions according to a signal from the group of technical indicators. Eventually, the chart underneath the indicators becomes inconsequential to the trader. It can be any currency pair, whether EUR/USD, GBP/USD, AUD/USD, or any other pair.
This situation is not ideal if you want to make money in the long run. The chart does not matter solely because you rely on indicators to make decisions for you. You may think that you are a trader, but in reality, you are being lazy. You are just following the signals blindly in the hope that it will make you wealthy. By using the indicators, you ignore the charts and price flows and keep clicking buttons when it is time to buy or sell according to the indicator. This is a problem, and you will soon notice it in your deteriorating account balance.
Indicators depend on conditions
If you are a trader, you must have seen the sales pages of the forex EAs. You will see that something is common among them – all of them promote a high win rate. Isn’t it odd? After all, if you think about it, a high win rate is not really always necessary. Yes, it indeed feels good to win trades, but the ratio of a win to losses should be entirely inconsequential on its own. The great trader and investor stated that winning or losing doesn’t matter. How much money you win or lose is a more important matter here. So, it is strange that all EA merchants focus on win percentage.
Have you ever wondered how these robots achieve these win rates and also have the results backed up by Myfxbook? The answer to this is quite disappointing. The developers actually rig the system. They design the robot to work in a specific market condition. As a result, the performance statistics look impressive while the robot is completely dependent on those market conditions. If you observe carefully, you will see that they only work on certain currency pairs – it is all a part of their scheme. So, when the market conditions change, the EA will stop performing, and the software will be useless.
Psychology plays a crucial role in trading
The financial markets are driven by psychology. If we try to explain the forex market in a nutshell, it is gathering millions of people from across the world and asking them if they think a currency is too high or too low. Whenever we buy or sell a currency pair, we decide whether it will move higher or lower. So, in a collective sense, what all traders in the market do is illustrated through the price action on the charts. Ever wondered what will happen if the EUR/USD approaches a level acting as resistance for the last six months? It has a high chance of attracting sellers.
All traders can see this resistance level, even if you do not mark it on your chart or notice it in time to benefit from it. It does not matter if the trader uses a Stochastics, RSI, MI, MACD, or a combination of indicators; everyone can see and use the major support and resistance levels. However, the price action may be the same for all traders, but the indicator combinations definitely are not. There is an infinite number of indicators, and each of the combinations can show you different results. So, indicators are not your answer to trading. The real factor lies in the psychological support and resistance levels.
Indicators Make a Simple Process Complicated
It is not necessary that trading the forex market and making consistent profits has to be complicated. However, most traders end up complicating things more than necessary. You may check out some charts from MetaTrader trading accounts to see how the most popular forex trading platform makes its traders start trading. Now, you will notice that the default combinations of indicators used by the most popular templates are the most complicated. So, it is no wonder that most forex traders struggle in trading, especially when they are beginners.
No, all technical indicators are not bad, but the issue is that they are abused by many traders. These traders add four or five indicators to the chart and watch for overbought or oversold conditions to make decisions without even knowing what they are buying or selling. As a result, after a couple of months, they do not see consistent profits. It leads them to frustration, and they end up looking for new indicators and new trading strategies but never find what they are looking for.
If you want to get better at trading, you must study it so you can work with a clean chart. It is useless to spend your time shifting to and from technical indicators. Learning to read the activity of your chart is a much better option. Many traders attempt to troubleshoot complicated indicator-based strategies, which feels like going through hell. By using simple price action strategies, you can reduce your struggle at least by half. If you feel that indicators are your thing, it is fine, but make sure you learn to read price action. You will get a lot of help from it in the long run. Keep in mind, no matter what you do, always try to keep it simple.