He has a monthly readership of , traders and has taught over 20, students. Instead, I teach my students to trade off of a plain vanilla price chart by learning to read the pure price action that occurs each day in the Forex market. This article is going to explain exactly why trading with indicators is detrimental to your success as a trader, and why you should learn to trade with simple price action setups instead.
So, forget about the confusing haphazard mess that indicators leave all over your charts and let this article open your eyes to the power and simplicity of trading with pure price action. The root of the problem with using indicators to analyze the forex market lies in the fact that all indicators are second-hand; this means that instead of looking at the actual price data itself, you are instead trying to analyze and interpret some variation of price data.
Essentially, when traders use indicators to make their trading decisions, they are getting a distorted view of what a market is doing. All you have to do is remove this distortion the indicators and you will obtain an unobstructed view of what price is doing in any given market. The other problem with lagging indicators like MACD and moving averages is that they will chop you to pieces in consolidating markets; firing off buy and sell signals just as the market is about ready to reverse and re-test the other side of the trading range or consolidation area.
So, essentially, the only real use that lagging indicators have is in helping to identify a trending market, and I do actually use certain moving averages to aid in trend identification.
Check out my price action trading course to find out exactly how I implement moving averages with my price action setups, they are the only indicator that I use and I do not use them for anything other than identifying dynamic support and resistance areas. So, if a market is in a strong uptrend, an oscillator will show the market as being over-bought for the majority of the uptrend, even if it continues rising for a great deal of time.
The opposite is true in a downtrend; oscillators will show over-sold conditions almost continually in a downtrend. The problem is that no one ever knows how long a market will trend for, so you are going to have a ton of false signals before the actual top or bottom of the market occurs.
It is often the exact top or bottom that is showed in examples of these oscillating indicators by people who are trying to sell indicator-based trading systems. You can probably guess what results from the combining of numerous opposing indicators all over your charts; a heap of confusion and mess that causes second-guessing, doubt, over-trading, over-leveraging, and every other emotional trading mistake you can imagine.
You can quickly see just by looking at this chart how confusing it is, and you can also see that there are a lot of unnecessary variables on this chart.
There is simply no reason to make trading more difficult than it is, but having all these indicators on your charts does exactly that:. By learning to read this natural price movement and the conditions it occurs in, we can trade in a very simple yet effective manner.
It is also worth noting that due to the fact that there are no indicators underneath the price, like the MACD and Stochastic in the above chart, you have a completely uninhibited view of price which allows for a less distorted and larger view of the price action than if you had multiple indicators taking up the bottom portion of your screen as can be seen in the chart above.
As we can see in the above two images, the clarity that you get when trading off indicator-free, pure price action charts , is very obvious and significant. Being focused is very important as a trader, when you have 5 different indicators on your charts all telling you conflicting messages, this simply does not contribute to a focused and clear mindset, but rather it induces confusion and indecision.
Having less parameters to analyze causes your brain to work more efficiently and allows you to rely more on your own natural trading instincts. Understanding how the stochastic is formed is one thing, but knowing how it will react in different situations is more important.
If they are above this value, the security is considered overbought. Once a trigger line the nine-day EMA is added, the comparison of the two creates a trading picture.
From the above two descriptions of the Stochastic and the MACD indicator, we can see it almost hurts your brain physically to read all the parameters involved in calculating them and how exactly they are to be used. The over-arching theme of such indicators is that you have to follow specific rules to use them. This means you have to be sitting in front of your computer waiting for the indicators line up exactly right before entering a trade. You can see how quickly this jumble of messy and overly-complicated lines, colors, and signals all over you charts can confuse you and even cause you to panic in frustration.
I actually got a headache just doing the research for this article because I know that indicators like these are so pointless and unnecessary that it hurts my brain to think about it. Now compare the above chart to the exact same chart below with nothing but pure price action setups and support and resistance levels marked. It becomes clear when you do an exercise like this that trading off pure price action is much more logical and advantageous than trying to draw the same ultimate analysis from something OTHER THAN price.
Too put trading with price action in the context of a sales metaphor; you are cutting out the middle-man and buying directly from the producer. The chart below is a daily chart of gold. Notice how the Stochastic indicator was showing an over-bought condition for multiple months in during what was a very strong and vigorous uptrend full of many profitable price action entries.
The arrows in the chart above each mark a price action setup that I teach, if you had been trading this uptrend in gold last year you would have obviously been much better off just trading the price action rather than trying to over-analyze and over-complicate everything with a bunch of messy indicators all over your charts. If it is not extremely obvious by now why price action trading is a far superior forex strategy than any indicator-based strategy, it should be.
If you want to truly understand price dynamics and the mechanics of financial markets, you need to learn to analyze price action on an indicator-free price chart. If you end up using some other trading strategy or system, your knowledge of price action and how to trade it will only make that strategy or system more effective.
Price action is great because you can form decisions about future outcomes and direction with greater accuracy and speed than any other trading method because price action is the most current market analysis tool there is. Eventually your brain and subconscious will sync up together and trading off pure price action setups will be like riding a bike; once you adapt to it you will be able to ride it very well and it will become like second nature.
Price action is the most clean and logical way to analyze and trade the forex market, learn to trade off price action sooner rather than later if you want to get your trading on the right track. Hi Nail Cry of joy have over-taking ME seen i started reading your article my trading have seriously changed. I noticed this problem in and since then I only use indicators as a visual aid.
I think indicators are a distraction. If you must use them use more stable ones. I just had to let you know that i am an AVID reader of all your newsletters. I find them not only inspirational but it gives me a wow factor cause your advise is simple and realistic. I was about to give up forex trading until i came across all your archived newsletter covering various topics…i am now glued as i am thoroughly enjoying your simplistic approach to trading which now sounds far more appealing….
God Bless You for sharing all your insights in such a thorough but efficient manner. After bumbling around indicators for years the light is coming over the horizon. I have really taken up your training and after a frenetic year with.. I have now stopped trading save for a carefully planned Tuesday or Wednesday poke into the market with a pin bar or fakey if one is there. This is very good stuff for free!! It is easy to follow and appreciate. You deserve your success, and it is apparent you are a good teacher.
Actually camarilla indicator draws support and ressistance lines on my chart based on yesterdays high , low and close values. There are only two lines one support red line and one resistance line green line. I have eliminated all indicators and enjoy sucess of trading! But stuck them on anyway! I found them so confusing my brain started to melt! You make trading sound so simple keep up the good work. Excellent article, detail explanation — I didnt know how contrary signals can indicators send in one moment.
Your style of trading is clear, your articles are very valuable. Thanks a lot from Slovakia. This technique is superb, i have been developing something similar to your concept and now i just saw the masterpiece completed in your website, thanks alot and keep up the good work….
Thanks for the article. Hi Nail you are a genuiue fx price action teacher who want to help upcoming fx traders like me. The free acticle you sent to me was a great partfinder in the fx world , I will join your paid course soon. I have never liked using indicators but at first I got caught up in them after watching many other traders.
Actually now I can understand the real price action within the chart I know that these traders didnt have that much expertise at all.
Whenever I see a chart plastered with indicators it makes my stomach flip and I loose all interest is the person, piece of writing that accompanies it. I know exactly how you feel! How important do candlestick formations and patterns become with the lack of indicators? This strategy seems to mesh well with recognizing contained candlesticks and certain types of tails.
The focus on simplicity and discipline is great. It has taken me awhile to clear off my indicators, but am feeling whole now with a clean screen. Indicators are for people with too much time on their hands who are more interested in the look of their chart than making money.
We are forever indebted for your unyielding efforts to help us with our trading careers. Anyway, just bought the course and ready to learn the way I wish to trade, clear PA. Many thanks for this web. I have read and re-read your forex articles and my trading have improved a lot. Thanks a lot Nial.
With out a doubt, this has to be the best and most educationally honest forex trading website out there! I have spent time with some industry hedge fund managers and they teach exactly what Nial is teaching you here; the only Nial has made it affordable comapared to paying thousands to attend mentorships with ex-wall st traders.
Now with that said, my very own friend has lost trades based on the trading decisions of very prominent traders who are ex-wall street traders.
And I can definately confirm that Nial is the most generous when it comes to responding to emails and being dead honest! I have personal experience with exchangin emails with him in which he has saved me alot of money. Keeps my feet on the gound again. Thanks a lot for that. Indicators have robbed a lot of money from traders.
Market does not know mathematics, leave alone complicated mathematics. Prices go up and down according to sentiment and this sentiment is translated into candlestick patterns. And Nial has shown the truth of this principle through his price action strategy. Excellent, very well researched article as usual, Nial! Very useful as a reminder not to overcomplicate our trading. My method of trading involves candlesticks, pivot points, trend-lines where possible and just one EMA, which I use in a similar fashion to yourself.
For the past months I have been going through your website and training notes and videos and it is just awesome. I have made some good money from what I learn.More...