can be addictive

I am not a technical trader but I do use two indicators

Watch the video below. It may save you a LOT of time and money.

Indicators can be addictive. Watch the video below to see why

The bank traders focus on price, and price alone

I spent the first few years of my trading life looking for the holy grail and I was convinced that technical trading was it because so many traders do it.

Wherever I looked on the internet, and on Amazon, I saw indicators and articles/books about how to use indicators to make profit. I spent a lot of money, and more importantly, a lot of time on technical analysis. I use virtually NONE of that analysis now.

In hindsight I don’t think I wasted my money because it was an itch that I needed to scratch, but I do regret how much time I spent on technical analysis. I have earned the money back, but I cannot retrieve the hundreds of hours I spent searching for the elusive combination of indicators that were going to make me wealthy. So I wish that the ”penny had dropped” that it is the banks that move the markets a lot earlier than it did. However, I cannot turn the clock back, so here I am trying to tell you not to go down the same rabbit hole as I did…or if you already have, then encouraging you to come out of it.

I cannot prevent everyone that comes across me to quit technical trading. For some people it works. However I know from speaking with hundreds of traders over a 10 year period that for the majority of traders technical analysis is not fruitful. 

I won’t spend many words here trying to convince you to let go of the very tempting desire to use indicators as frankly it would take way too long and you would get bored. However, what I will say is that knowing who moves the Forex market( the banks) and how and when they trade, is far less stressful than hoping that a buy or sell signal from one or more indicators is going to bring home the bacon.

My trading life is one of no stress, no NEED to constantly visit the charts, and it brings me knowledge and mental stimulation far beyond anything I ever got from technical analysis.

There is a calmness that you get when you study the markets and understand the clear and obvious moves that you see on the charts.

Please don’t get me wrong, market analysis is not easy and there can be times when it is extremely tough, such as times of economic or political uncertainty. However, most of the time the” market” reacts to the facts that are in front of it, and since we are in an age now where you can get all the information that the professionals get for FREE, it is now possible to have all the ammunition at your fingertips such that you can stay on top of the markets in less than an hour a day.

I remember when I spent more than an hour a day staring at indicators, waiting for that elusive trading opportunity. I spend less time now on market analysis than I did in the old days on technical analysis. To be honest, when I look back at my technical analysis days I recall thinking that market analysis was too time consuming and complicated, so I figured that technical analysis was the easier route to riches. The tables have turned. I now see market analysis as the quickest way to find the best trades, and technical analysis to be a huge waste of time.

The old attitude that I had to trading is meat and drink for the hundreds of people selling indicators and technical analysis courses, because they know that most traders start out on the technical analysis route, so it is a huge market for them , and some of them make a fortune selling software, courses and mentoring programs using primarily technical analysis. I was guilty myself of selling my indicators back when I was convinced that they were needed.  I was absolutely committed to technical analysis and saw it as a necessary part of the trading process. It goes to show just how brainwashed we can become. I managed to break free from the ”addiction” I had to technical analysis purely by learning more about the markets and noticing how the markets move because of world events, and not because of a moving average, or other visual indicator.

Let me be clear about something regarding indicators. Sometimes they do work. I will explain why now….

Let’s say for example that there are two months of very favorable core PCE data. This would cause bond yields to come down, and the U.S dollar would weaken. Stocks would go up, and the commodity currencies(AUD,NZD,CAD) plus the GBP would strengthen. Depending on how close the USD/JPY is to 150, the JPY would also likely weaken, so for a few days or so there will be currency trading opportunities off the back of the core PCE data. When this happens lots of indicators will signal a U.S dollar sell signal and maybe a GBP buy signal, or an AUD buy and a JPY sell signal, and all those signals would be correct. However they would be correct because of how the bond and stock markets reacted to the data, which then lead to Forex currency moves. The signals you get from indicators are bound to be correct sometimes. 

Take a moving average as a case in point. Given the conditions I have just described, then on some charts will show the U.S dollar fall below a particular moving average, or you may get one moving average crossing another. This WILL happen because the U.S dollar is falling, due to the core PCE data. You would also see apparently correct overbought signals on the U.S dollar, suggesting a U.S dollar sell opportunity.

It makes sense that indicators will work because most of them reflect price in hindsight.

I fell for the narrative that you don’t need fundamental analysis because the charts reflect everything that is happening. I now realise how wrong that is.

In the example I have given above of course the indicators are reflecting what is happening, and they correctly signal opportunities. However, what if the PCE data is good but  was already somewhat ”priced in” by the bond market that had already pushed yields down? In this scenario the U.S dollar sell opportunity would be very short lived, and I would not take it.

In addition, it is a fact that around 70% of the moves you see in currencies are RANDOM, and not related to news or fundamentals. Consequently all indicators give FALSE ”buy” or ”sell” signals.

So if you do not know WHY a move is happening, WHAT caused it, and crucially, if it is tradeable because the move is likely to last, then in my opinion you are trading with one arm tied behind your back.

All that said, I totally understand why some trades NEED indicators to give them confidence. So I am not suggesting that you give up on indicators, but I am suggesting that if you want to be consistently profitable, and not just lucky for a year or so, then my advice is to use indicators if you have to, but complement them with your own market analysis and knowledge of what is moving the markets and WHY the moves are happening.

If you want to eventually break free from the hold that technical analysis has on you( it had a hold on me for years) then start watching my weekly Forex Market Movers videos. they are FREE and I send a video out approximately once per week. I will explain to you what has moved the market, and over time you will get the confidence to start using market analysis and eventually replace most of your technical analysis tools and indicators. Technical analysis can be quite addictive, especially with indicators. It is so easy for our brains to be convinced that we are seeing something that looks profitable that we get lured into trying it.

Getting away from that desire to use indicators won’t happen overnight, but you will feel so much more empowered when you are not relying on indicators to make your decisions.

I still use two indicators. However I use them  in a way that is completely separate from my market analysis. I will briefly explain here but a better explanation can be found in the video above.

Support & Resistance

I know a retired bank trader. He worked for a very large UK bank and traded Forex. He confirmed to me some years ago that all the bank traders he knew used only PRICE as a guide to a trading decision. The only ”indicator” they use is strong PRICE support or resistance. The reason for this is that when a very strong area of support or resistance can be seen on any chart, be that a Forex or stock or commodity chart, it says something about the perceived  ”fair value” of that instrument, as it is clearly an area beyond which the market did not want to move in the recent past. So if there is a strong area of support below the current price then that strong area represents a price area that the market did not want to go below recently. Clearly the same applies for a price area above that shows strong resistance. So although it is indeed economic and political factors that move the markets, the markets still collectively enter and/or exit positions at these strong areas of price support or resistance.

To that end, I use my own Support & Resistance indicator to help me with a trading decision. Most of the time my decision on which currency pair to trade has nothing to do with support / resistance because that decision is based on market analysis. However there are some occasions, especially where the U.S dollar is concerned, when a chart itself helps to determine which currency pair to trade. I explain this in more detail in the video above. I also explain in the video why I created my own indicator for this type of PRICE analysis.

To summarise what I discuss in the video the main use of this indicator is in determining my stop loss and profit target. That is the primary use of Support & Resistance in my trading.

It doesn’t matter what you trade, in my opinion, you should use Support & Resistance to help determine your entry and exit prices. In some cases Support and/or Resistance can lead to a NO trade decision, because there is not enough ”ROOM” for the trade. I also explain this in more detail in the video.

So, to be clear, 90% of the time I do not use this indicator to help with deciding which currencies are tradeable. That decision is based on market analysis and typically I end up with two or three possible candidates to trade if and when an opportunity arises. However, once that analysis is done, I then use Support & Resistance it to ”NARROW DOWN” which of currency candidates are the best to trade based on the prices I can see on those charts.

This is quite a complicated subject, so I will leave the rest of the explanation to the video above, but I hope that you get the gist of it.

Apollo Currency Strength Meter

The other indicator I use is my currency strength meter. This indicator is far less important than Support & Resistance.
 I call the indicator Apollo. Let’s look at an example of how I use it.
When I am doing my market analysis I like to ask myself a question. Here is an example of what I mean:
I open up my currency strength meter, look at the relative strength / weakness of each currency and ask myself ”Mark….do you know WHY that Canadian dollar is the weakest today, and why the Japanese Yen is the strongest?”

That question is obviously based on me seeing a picture on my screen of Apollo and noticing that the CAD is at the bottom and the JPY is at the top.

I then look at all the other currencies and their relative strength / weakness and ask myself the same question….”Mark, WHY is the U.S dollar the second strongest currency, and WHY is the Australian dollar the second weakest?……and so on.

My task every day is to understand what is moving the market and WHY.

If I want to trade then I have to hold an opinion about each currency and it’s relative strength / weakness.

If there is a currency that is either strong or weak, or in between, but I am not sure why, I will not trade it. I see it as my job to understand the cause of a currency’s strength or weakness, because if a currency s particularly strong, or weak, and I cannot explain why, then it is highly likely to be a ”random” move that is untradeable.
Random moves happen most days in all markets, Forex is no exception.

When I do know why a currency is strong or weak that does not mean that I will trade it, because my view might be that the strength or weakness is likely to be short lived, based on what I know is happening in the markets.

I also do not just trade the strongest against the weakest, for the same reason. I may feel that one of the currencies at the top, or the bottom, is unjustified in being so strong/weak and will therefor look to the other currencies for a potential opportunity.  

I regularly trade two currencies that are in the middle of the pack, because that is what my market analysis is telling me to do.

Please don’t use any currency strength meter as a technical indicator. They are as useless as all the other indicators. My advice is to use a currency strength meter simply as a self checking tool. Use it to check that you know what is moving the markets and WHY.

So to summarise, I don’t use Apollo as an ”indicator”. I don’t use it to ”indicate” what is tradeable. I use it to test myself and my knowledge,
What I do like about currency strength meters is that they do give a very good quick glance of currency movements, and I do like to use them in this respect, but it can be very tempting for many traders to use them to trade the strongest against the weakest, or to pick tops and bottoms, especially if they are also using overbought/oversold indicators.
I explain in more detail how I use this indicator in the video above, as well as why I created my own currency strength meter.
Mark Boardman