With forex indicators as in so many things in life “Yes, there are two paths you can go by, but in the long run, there’s still time to change the road you’re on” – Led Zeppelin
We’ve already touched on the topic of indicators in the section on Price Action Trading. Now let’s have a look at the subject in detail. Firstly, a definition of what constitutes an indicator in trading terms.
Do a Google search on the string “what is a trading indicator?” or something similar and you will get the usual display of several million results. There will be plenty of discussion of indicators, but very few definitions.
So here goes, my definition:
A Forex Indicator is any representation of past price behaviour
in an attempt to predict some aspect of future price behaviour.
It may seem trivial, but it really is worth getting clear in your mind just exactly what it is that an indicator is supposed to do for us.
So reading through the above simple definition again, we can note that indicators attempt to predict some aspect of future price behaviour. This is where they become useful to us as traders. But the one distinction that forex newbies are generally unaware of is that indicators can be broken up in the following way: they are either lagging or predictive.
(For a discussion of this break down of the two types and how they can be used in forex trading, you can skip to the Forex Trading Indicators link below.)
As noted elsewhere on this site, I mostly restrict my own trading to Price Action Trading. This is because restricting your choice of indicators to those aligned with price action trading Keeps It Simple!
Price action traders are uninterested in offscreen, lagging indicators. Instead, they concentrate on anything that can be portrayed in the actual chart window itself that may pinpoint a price level where price is highly likely to react, or that gives real time, current indication of price trend.
All of these real-time tools I refer to as indicators.
The basic Indicators of the price action trader are:
I am also making available the following indicator which I have had coded for me after my own design:
The following section discusses the Types of Forex Indicator and is a general discussion including MACD, RSI etc. Lagging & Real-Time, Off & On screen:
Having covered simple indicators and how they are used in forex trading, a good place to go next would be the following section, Candlestick Charts. This builds on the principles of price action trading and the most useful, real-time indicators that you can use to master forex trading.
Put these three sections together – Price Action Trading, Forex Indicators And Candlestick Charts – with your identification of Trader Type and you are well on the way to having identified what truly is the best approach for YOU to trading the forex exchange markets!