Technical analysis has always been a very powerful for the purpose of analyzing the market and making predictions concerning the future trend of the currencies market. But most of the analysts and traders available have a very big misconception that trading becomes easier by making use of technical indicators. They also believe that indicators are this invention which can provide them with all the answers about how the market will behave in the near future.
And going a measure further they also end up believing that larger the number of indicators used by them, more will be there chances of accurately predicting what is going on in the market and what can be done to create their trades more accurate in the future.
Most of the forex indicators which are present out there make use of pricing data to be able to predict what is going to happen soon.
A big problem with using technical indicators is the fact that most of the tools that are present available for the purpose of charting make use of price data that’s invariably changing each and every second. Which means that by the time the indicator has performed the set of operations to plot a chart, the price values have already changed and also the information that is being depicted by your chart is no longer what is really present in the market. This essentially means that indicators are designed to work on large time frames and can provide you with a long term view from the market. They cannot be inherently employed for the purpose of short term trend prediction and trading. Also indicators are not suited to market situations where there is a lot of volatility. This is due to the presence of a directional bias.
A very common alternative to the use of technical indicators is price action. Though current market price is the fundamental quantity which is used for the purpose of generating a technical indicator and for the purpose of trading through price action, the cost action methodology is better while there is no lag between the execution of trades and change in prices in the market. Indicator trading isn’t good since it fails completely per day trading scenario. Though adjustments can be made to make the predictions better, accuracy is generally not that good and what is being represented by the charting programs is simply isn’t what is actually happening on the market.
Thus it can be quite easily said that trading by making a sound strategy and carrying out a price action approach is more preferable when compared to trading using only forex indicators. It’s been found that around 80% of the traders which rely on indicator based trading only and do not have any well laid strategies tend to lose out all their investments within the forex market. Thus it needs to be noted that though indicator trading has its own cons, it can be effectively used to trade in the market if complemented with a sound and well laid out investment strategy.