To Use or Not to Use: Technical Indicators

Beginner Questions
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Hi, everyone! I’m a newbie in this world of forex. I’ve recently been seeing Youtube videos saying that learning Technical Indicators is a waste of time. I decided to dig into this a bit and saw that there were a few different answers. Some say that they’re all useless, others say to just use one or two, and others say that people tend to misuse them or use too many of them.

So are Technical Indicators really useful and how can I use them properly? If not, why and what should I be studying instead?

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If technical indicators could predict the future, we’d all be millionaires. However, using the right combination that suits your lifestyle and strategy could help you to become profitable - or at least minimise your losses.

What you should be studying is how the markets work and reacts to change, bearing in mind price movement is a LAGGING indicator, not the Holy Grail of trading Forex. For example the USD/CAD has rarely sustained moves above 1.40 in the past.

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@oziiboyy, Welcome to the Forum… Technical Indicators (or TA) are a double edged sword… They work great until they don’t… Quantitative Mathematicians are constantly developing the algorithms for the Financial Markets that are designed to erode your account stop loss by stop loss… dollar by dollar…

Most Indicators (~98%) in their purest form will help you make a profit and whilst at the very same time, ensure that your profit is returned back to the market… RSI, CCI, Moving Averages, Bollinger Bands, Parabolic SAR and even the Ichimoku Kinko Hyo Cloud is catered for by most price feed generating algorithms used by the Liquidity Providers (Banks) and Market Makers (Brokers) alike…

Notice how price action always bursts long, just before a huge downtrend, how price action bursts short, just before an uptrend… All part of the game of trapping unsuspecting funds into the markets.

I design and code maybe five or six Indicator based strategies a week, all with substantial “visual”
backtesting… You see how price action defeats Strategies, Indicators, Bots (EA’s) on a weekly basis…

You also get to see what does work and just how accurate mixtures of Indicators, applied creativity are…

How can you get around this alchemy? Firstly, don’t rely on Indicators… learn to trade Price Action… One of the most successful PA strategies I used a few years back was from the Naked Forex Book…

Secondly NEVER EVER use an Indicator in its standard form… The market is trading against them…

The Parabolic SAR with standard settings MinAF 0.02 / MaxAF 0.2… Will not turn a profit in most market conditions, try MinAF 0.009 / MaxAF 0.5… Apply to any medium TF Chart… You’ll see an improvement instantly…

Don’t rely on Moving Averages to cross… Use a strategy that removes the carnage of muddled MA’s… Just trade the IsRising or IsFalling value derived from this Indicator… You can use lower periods and signals are cleaner, sharper and contain way less lag…

RSI and the CCI… Continually getting caught by the trend continuing even when well into the overbought or oversold zones?? Why not open up the Periods (say 20, 25, 30) to give a smoother Signal instead of the standard 14 and trade the crossover of the 0 level on the CCI or the 50 level on the RSI…

Above is just three examples of simple “Outside of the Box” concepts used on some of the common Indicators. Will market Algorithms have effects on Indicators used like this? Probably yes… But to a lesser extent than standard setting Indicators you were taught during your “FX Education”…

Try these on a Demo… You have nothing to lose…

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I wouldnt discount anything as a beginner. Its all about probabilities in forex, if you have an edge and are able to follow the rules youll be profitable. Indicators definitely have a value for some. Find a strategy follow the rules and make profit. oh and the most important thing of all read Mark Douglas Trading in the Zone before you do anything else

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Nothing works alone but everything could work as building block of a trading system.

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Market data is chaos. A trading system is a testable and repeatable way to find order in that chaos and profit from it. A requirement for my own system is simplicity: if I can’t make a trade decision in less than 5 minutes, the system is too complex.

In my experience, more technical indicators leads to more complexity. Each indicator has its own set of rules and conditions that must be evaluated before entering the trade. While useful, they are not a substitute for understanding what drives market behavior and how to identify tradable market structures. Too many of them can lead to analysis paralysis.

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Excellent post. Much appreciated, particularly the revised setting on PSAR, one of my key indicators.

In return, I trade Ichimoku for FX trend markets, but my settings are 8- 22- 44. Why? because Ichimoku was created when Japan traders traded a 6 day week. I’ve tweaked it to compliment a 5 day trading week. The best time frames to use it is Daily, 8 & 4 .hours.

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Is this correct? or is it MinAF 0.09?

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I read this years back and I still follow it. Indicators are similar to a rearview mirror in a vehicle. A good driver just looks at the mirror for a second before taking a turn and focuses only on the road most of the time. Use indicators with the same approach, have a glance at these and focus on other key elements (like price action, chart pattern etc.) to predict a trend.

Dependency on indicators to predict trend might be dangerous. If other key elements like - candlestick pattern, price action, etc are showing you the green signal, just ignore indicators and go for the hunt.

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@steve369, Yep that post was correct MinAF 0.009 / MaxAF 0.5… Some pairs will require a bit of "fine tuning’, you can play with the settings. Allows you to convert a Stop Level Indicator into a signal Indicator.

I have discussed a few alternative ways to use the PSAR as far back as January 2018… (See Below)

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This is so well explained.It has cleared so many aspects about technical indicators for me as well. Great Read.

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It all depends on how you use them and with what strategy. They are useful to those who actually make good use of them. So you can try it once by yourself.