Why Inexperienced Forex Traders Often Come Unstuck Using Technical Indicators
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It is very rare to come across a profitable forex trader that doesn't use technical indicators in one way or another, even if it's just basic trend lines. However the whole world of technical analysis can be quite daunting for inexperienced traders, which is why many of these people often end up losing money.
They will probably start off with some of the most popular indicators. So for example they will add RSI, Stochastics and the MACD indicator to their charts, and play around with them on different time frames until they think they have found what appears to be a winning system.
They may then start trading this new system with real money, which is the worst thing they could do because it nearly always results in losses being made. There are very few traders who start making money straight away because they use systems that are far too simplistic, and this is often the case if you use some of the most popular indicators.
If they were that good, then we would all be rich. So you need to be clever and really think about how you are going to come up with a winning formula. Some of the most popular indicators will help you generate some decent profits, but you cannot use them in their simplest form, like many traders do.
For example you cannot just add the RSI and Stochastics indicators to your price charts, and base your system on going short when both indicators are overbought, ie above 80, and going long when they are both indicating an oversold position, ie below the 20 level. Forex trading isn't as easy as that unfortunately. You may have some success initially, but you won't make money in the long run.
Similarly you cannot just go long when the MACD indicator crosses above 0, and go short when it crosses back below 0. The best strategy is generally to use multiple indicators in unison and only enter a trade when they are all in agreement.
The point is that forex trading is all about finding high probability trades so you win more than you lose. So if you take a multi-faceted approach and use multiple indicators, and not necessarily the most popular ones, there is no reason why you cannot make money from forex trading, even if you are an inexperienced trader.
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Article submitted Thursday, September 22, 2011 & read 56 times.
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