Perhaps you read on babypips.com or other forex websites to stay away from trading indicators.
You see arguments like..
- Indicators are lagging in nature
- It gives you false entries
- It doesn’t show you exactly how to trade
And to be fair, some of these arguments are valid and I am in agreement with them.
But there’s a real reason why traders lose money with indicators.
I call it the Mix and Match Indicators game…
Mix & Match Trading Indicator Trap
A common pattern observed in new traders is that they believe that being profitable has to do with finding the “right” combination of trading indicators. Much like a puzzle that you put together. Or like the infinity stones in Avengers where you will finally achieve profitability by putting the right stones in the gauntlet.
So what they do is to go onto a buying spree and search for the latest trading indicators to crack the puzzle. And after being sold indicators after indicators, their chart becomes way too confusing and messy to make any sound judgments.
Why does this happen? I will let you in on what is going on in the marketplace for indicators.
The job of the seller of the indicator is to sell you on the concept that this trading indicator will transform you into a profitable trader; his job isn’t to turn you into a profitable trader. His job is done when you make the purchase. It is also the reason why the seller spends the bulk of his time on his marketing materials rather than perfecting the indicator he created.
Notice the words underlined..his job is to make a profit off you, not make a profit off trading the forex market for himself or helping you do that. He is the guy selling the shovels to you but not telling you where to dig for the gold.
Going on a trading indicator shopping spree is something you want to avoid. In fact, in my forex course, I only briefly cover a couple of trading indicators which are free to use. There’s really no need to purchase any of them. The answer you are seeking has to do with how you are using the indicators.
Using Trading Indicators: Do you make this mistake?
When using them, always remember that indicators are derived from price; without price, there is no indicator. Trading indicators simply indicate what has already happen and not what is going to happen.
Therefore, the mix and match trap covered above is a trap where you are doomed to fail. It doesn’t matter how many different permutations and combinations you try, its a journey that leads you to nowhere.
Trading indicators are meant to aid you in making a decision and not be the sole reason for the decision. Most beginner traders look at them first while the correct way to do it is to look at the last; after you have already firm up your direction and bias for the currency pair.
Here’s an example of the mistake that beginners make:
Upon seeing this chart, they get really convinced that the signal is strong. Look all the indicators are pointing in the same direction! This must be a really strong signal and I’m going to enter this trade right away!
Sounds like you? 🙂 this was the same mistake I made when I first started out…It’s kind of a rite of passage really.
That’s the wrong way to use trading indicators, especially if you are using indicators that all belong to the same category. Suppose you are using the CCI, RSI, and Stochastic. They all belong to the same category of indicators known as oscillators. This means that these indicators are calculated using a similar mathematical formula and hence the conclusion will likely be the same.
A beginner trader thinks that he has three forms of “confirmation” when really, it is only one.
This is also a good reason why you don’t want to be trading just off trading indicators. You want to be looking these after you already know your bias and which direction you are going to take.
Now That You Understand the Problem So Here’s the Solution
I previously recorded a video on how you can tackle the problem. In this forex trading video, I talk about why you are losing money with indicators and how you can fix it. If you want the short answer because you’re lazy to watch the video (it’s just 8 mins anyways), then the answer is to focus on price instead of trading indicators.
And that begins with clearing your charts so that you can read price effectively. This is how my chart looks like…
What? An empty naked chart with no trading indicators?
Yes that’s right. When you have developed enough experience and screentime, you don’t need indicators to tell you what to do. But if you are new and still want to have your indicators, make sure to keep it to a maximum of three indicators.
But Hey I Have Seen Profitable Traders with Indicators, Can’t I Just Copy Their Indicators?
Seriously, have you not read the above content?
Here’s a recap of what I mentioned above:
“Trading indicators are meant to aid you in making a decision and not be the sole reason for the decision. Most beginner traders look at them first while the correct way to do it is to look at the last; after you have already firm up your direction and bias for the currency pair.”
There are profitable traders out there who use indicators in their trading. But what you are seeing is only the surface ie the last step of the process. It’s much like this iceberg that you probably have seen a couple of times before…
Perhaps you get it and perhaps you don’t. But let me give you an example to drive this point home. You follow John who is a proficient trader who uses a couple of indicators like RSI, MACD, and Bollinger Band to time his entry and exits. Now this works for John because he has the “secret” setting that you don’t know about. Rather, he is successful because he knows when to use Bollinger band ie in a ranging market and when to use his MACD ie in a pullback. More importantly, he has developed the ability to read price and conclude whether a currency pair is ranging or trending.
That’s what’s missing and guess what? That’s something you will never know unless he reveals it to you of course.
In our free day trading guide, we reveal to you everything you need to succeed with the M.P.E strategy. And I think that is what makes us very different from other educators. We first understood this lesson (that’s why we are able to write it!) then we went ahead to create something that is comprehensive. So if you have not read it, make sure to grab a copy of our free day trading guide here.