How many indicators should you use?
In this weekly video:
00:26 – Most traders use indicators incorrectly
01:51 – Why do you use all of those indicators?
03:26 – Forex indicators and how they can help the trader
04:38 – Pivot points and Support & Resistance levels plotted automatically
05:09 – I don’t like most indicators
06:10 – Don’t clutter your charts
How many indicators should you put on your charts as a Forex trader? Let's talk about that and more right now.
Hi, Forex traders. Andrew Mitchem here, The Forex Trading Coach video and podcast 287.
Most traders use indicators incorrectly
We're going to talk about indicators. Most people use indicators in the wrong way, and most people over-clutter their chance with indicators. They cause confusion and when you start you like to see lots of nice arrows and lines and things on your charts because you think that's what you need to put on your charts in order to give yourself an understanding of what's happening in the market. Now, pretty much that's not true, but, unfortunately, that's the process and the journey that most people, including myself when I started, go through as a Forex trader.
You soon start to realize and discover that most indicators out there aren't actually much good. And you'd know if you'd been listening or watching me for many years, that you'd know that I generally say that I'm not a fan of most indicators out there. Lots of reasons why. The confusion side of things, they lag what's already happened. They tell you what's happened in the past. Most indicators don't really give you much of an indication of what's likely to happen. They all sort of make some form of average over what's already happened. Well, that's too late. People get confused with an indicator saying a buy on this timeframe and a sell on that timeframe. So that causes confusion.
Also, when you actually look into the history of most indicators out there, most of them were written well before the mainstream Forex market was even … so that people were using them on MT4 platforms, et cetera. So most of them were written for other markets than the Forex market.
Why do you use all of those indicators?
But then, last week somebody wrote a comment on I think it was YouTube, on one of my posts, and said, “Hey, Andrew. You're always telling us you don't like indicators, yet your charts here are full of indicators. What's going on?” Really easy response and reply to that. Well, I find what I use useful. It's the software that I provide to my clients with my coaching course.
But think about it this way, when you're driving a car and you've been driving for any length of time, you know how fast you're going, pretty much. You can tell what speed you're going, roughly, within a few kilometers. If you've got your lights on, you know you'd need your lights on because it's dark. But there's a light inside on the dashboard telling you that you've got your lights on, or the beams on. There's a light in there telling you when your wipers are on. Well, you can see because it's raining and your wipers are moving. But there's still a light there telling you things like that. There's a line there or a needle, dial, moving up and down with the revs that you're going through. Well, if you're revving with your foot down on the pedal, you can hear that the engine's revving faster or you're going uphill. So you kind of know that.
If you're in a manual car or an automatic car and you're changing gears or it does it for, you kind of know what gear you're in. You're on open road, cruising along as the 100 kilometers an hour, you know you're probably in top gear. But there's something on your car that tells you. Why does it do it? Well, it helps to give you an idea of what's happening. It takes the pressure and the workload off the driver. All things like that.
Forex indicators and how they can help the trader
And so, really, bringing that back to the Forex market and what you see behind me on the charts, is no different. I've got things there that help give confirmation. I've got arrows on my chart that tell me what type of candle we've just had. Are we looking at engulfing candles, outside bars, pin bars, hanging men? Those type of things.
I can see those but they help to take the workload off and help alert me to certain things happening on the charts. When I have round numbers plotted horizontal levels, I can see that the price is stalled at a round number. But by having it on there it just helps to alert my eye. It makes things easier for me. I don't need to have to have it but it helps to alert me. When I see divergent showing, I can see the divergent showing. But again, by having it plotted there in real time, and I get candle patterns happening at round numbers, with divergence, it helps to make things quicker to scan through the charts and easier for me to get an idea of what's in the market.
So that's why I have a certain number of indicators on my charts. Not because of absolutely necessity, needing them, but because they make my life so much easier. And that's why I provide them to clients.
Pivot points and Support & Resistance levels plotted automatically
The only thing that I have that I really would struggle to use without having this indicator is the pivot point and support and resistance levels. Now, traditionally, many years ago, you'd have calculated all those figures and plotted them on your charts each day. Now, I don't want to do that. So my software does that automatically for me every time the new day changes over, and it plots them on all different timeframe charts. Again, yes, I could go and do that manually. But why would I when the software can do it automatically for me?
I don’t like most indicators
So when you hear me saying, “Well, I don't like most traditional indicators,” that is still true. However, I don't trade completely blindly or naked trading as some people call it, when all you're doing is seeing the price or just the candles showing. Because to me, you do need a little bit more. So indicators are important if you use a select few that work for you. I've found, over the last 15 years, that I've stuck with the same ones that work really well for me and with thousands of clients, for thousands of clients all around the world.
That's because that helps me to say, “Well, this candle pattern that I'm looking for, what part of the chart is it in? Where is it bouncing? What's happened previously? Do we have divergence? Are we overbought, oversold?” All those type of things. “Where can we put our stop loss to give us a good, safe level? Is there room to move to our profit target?” All those type of things. And that's the way that I like to use the select few indicators that I have.
Don’t clutter your charts
So I hope that helps. Don't go cluttering your charts with all sorts of combinations of moving the parameters and things of indicators, because it generally leads to confusion. You've heard the phrase “analysis paralysis”? You're sure to get there if you put too many charts or too many different indicators on your charts. Just stick to a few basic ones that really help you with your strategy. So that's the important key.
So this is Andrew Mitchem, The Forex Trading Coach. I'll see you this time next week.