Forex Trading: Price Action Vs Technical Indicator

Most traders are under the misconception that using technical indicators makes trading easier, the belief being that indicators represent some type of technological advancement that allows anyone to solve the mystery of which direction the market is going to move with zero market experience.
Building on that misconception, the next step is to believe the more indicators one uses the greater accuracy one can trade at. Because of these misconceptions, most folks begin and end their trading career using some mix of indicators.
Remember, 80% fail at trading and statistics show most of these failed traders are using indicators.
In order to become a successful trader, it is imperative that one not do what the 80% are doing.
The majority of indicators that are most frequently used are simply some form of a collection of pricing data that creates a numerical point and then one can plot that point across a chart so that one can see some form of price average or that point is automatically plotted on a chart in a pleasing color that the trader selects.
The problem with this is that all indicators are lagging because the numbers have to be generated first such that the formula driving the indicator can crunch those numbers and come up with a result to plot. By the time that number is derived the market has already moved on. In short, indicators tell us what has already happened. Indicators are not predicative and only tell us what the overall tendency of price movement has been.
What this means is that indicators perform best on large time frames and are better used for investing and/or buy and hold scenarios. When indicators are used on smaller time frames, for instance on an intraday basis, the changes in the direction in price happen too quickly for the indicator to alert the trader. When indicators are adjusted to supposedly work on smaller time frames, accuracy diminishes and frequent false signals occur. The trader cannot determine a false signal until after it has happened and then it is too late, by that point he has lost money.
Indicators do not perform well in highly volatile conditions or in fast moving markets. The forex market is the most volatile market on the planet. Directional bias changes frequently and rapidly. These are the two toughest conditions for indicators to consistently perform, hence the high failure rate of forex traders who rely on indicators.
The single best attribute of indicator trading is that it is an easy sell. Marketing the power of indicators by looking at after-the-fact pricing data (back-testing) lures one to believe that all they have to do is purchase the proprietary indicator package or system, turn it on, and the dollars are just going to start rolling in. You have seen the "hypothetical results". Using technology eliminates human emotions. Technology is not as error prone as human interface. The benefits that are marketed are endless and all the benefits point to "easy money".
If indicators, indicator based systems, and software based trading programs (these programs rely on the same processes that drive indicators) are so great, why are 80%-90% not able to grow their trading accounts in a positive direction using these trading tools? Why do the statistics show that the majority of traders who attempt to use these technology based trading processes always end up giving back any profits they may have gleaned on a few isolated profitable trades, and then finally quit?
The answer is simple. Eight out of 10 individuals fail to realize that to become a solid trader one has to follow the same path that any individual would follow to insure their success in any professional endeavor. They need to be trained. They need to get experience. The training takes time because they have to be exposed to various market conditions and experiences and then must learn from those experiences.
Eight out of 10 are looking for something that does not exist. If becoming a solid trader simply required you to spend some money on a class that you only had to attend one time, for a day or two or even three and then you were off making money, everyone could do it.
The reality is simple: 80% will spend anywhere from $2,000 to $10,000 dollars on average over a year or two on gimmicks and schemes that "pitch" instant money making trading opportunities, then quit with the misconception that the market is "rigged".
These folks were living in total denial, never realizing that they simply took a gambler's approach. Remember, gamblers rely on hope and luck. These folks purchased all of this trading garbage hoping that one of the products purchased would create the luck they needed to make that "fast money".
Solid traders understand that learning to trade is a skill, a skill that takes a little time to develop. The first step is learning to trade solely off of price action. Price action is the only predictive tool a trader has. By learning to interpret price action, the trader learns what conditions need to develop to place a trade. More importantly, he learns what not to trade. The solid trader would prefer to evaluate the conditions and determine a no-trading condition. The gambler always wants to be trading.
The comparisons are easy to see. There is the guy who goes into a casino with a fist full of dollars with no clear direction relying solely on hope and luck to make money versus the professional gamer who waits for high probability conditions to develop before putting money on the line.
The same reasons most fail in Las Vegas are the same reasons most folks are failed traders. They have zero discipline or commitment to take the time to properly learn what it takes to be successful at either endeavor.
The solid trader understands that price action works differently in different markets. In order to effectively trade the forex, one needs to be properly trained on how to interpret forex price action. This is why stock traders get hammered when they first attempt to trade the forex.
Eventually one realizes that price action is the only truly reliable indicator that a trader can work from. Anything else just creates additional layers of "noise" and complexities that do not generate more income.
The 20% that are successful rely on price action first, and as their individual trading styles develop, and based on what markets they trade, indicators may be used as a secondary tool. Indicators are never a primary tool.
To be in the 20%, you need to realize that whichever tool you use, price action or indicator, they both require time and experience to use effectively. The reality is, learning to trade price action is easier than learning to use technical indicators. Unfortunately, interpreting price action by many is perceived as less glamorous and mundane than having your trading platform loaded up with a multitude of colorful indicators and histograms.
The bottom line is, if you are serious about making money you will focus on what the 20% do, not what the 80% do. This means that if the tool or method is available for free, mainstream, or defies common sense, it is highly probable that it does not work and that the losing 80% are using it regularly.
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