Just look at how MetaTrader — arguably the most popular Forex trading platform — starts traders on their journey. The chart above was taken directly from a new MetaTrader demo account. Not all platforms start out this way but the vast majority default to some combination of indicators. All technical indicators are not necessarily bad.

How to easily recognise chart patterns

The issue is that many traders abuse them. They add four or five indicators to their chart, watch for crossovers or oversold and overbought conditions and then pull the trigger. They begin looking for a new indicator or perhaps an entirely new trading strategy. Any new endeavor has a learning curve. Some might be a few weeks while others can take a few years. For most, trading falls into the latter half of that range. One of the issues with using a trading system built around indicators is that trying to pinpoint the problem is an uphill battle.

But Frank is determined to make it work, so he decides to deconstruct the strategy to try to isolate the problem. There are hundreds if not thousands of technical indicators available for the MetaTrader platform. I speak from experience here. My first three years in the Forex market to were spent testing various indicator-based strategies.

Introduction to Technical Analysis Price Patterns

It was a painful grind. The only reason I made it through is that I was obsessively passionate about trading and stubborn enough to see it through.

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The way to untangle the mess of indicators on your chart is quite simple yet highly contested by most traders, particularly those just starting out in the business. Take it from me. Until you can read the raw price action on your chart, you have no business adding indicators. But after more than 15 years of trading financial markets and teaching thousands of traders, I can tell you that adding indicators before understanding price action is a mistake.

Yes, even I use technical indicators. As you may well know, I favor the 10 and 20 exponential moving averages EMAs. Those are the only two indicators I use. I primarily use these moving averages as a way to identify the mean. In math, the mean is the average of a set of numbers. We get that by adding the four numbers together and dividing by four.

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Financial markets are just the visual representation of what happens when math and psychology collide. Moreover, every market always returns to the mean. With this in mind, I use the area between the 10 and 20 EMAs as the mean during a trend. This keeps me from buying too high or selling too low. But notice how price returns to the mean before making the next move higher or lower. The concept of mean reversion is one of my broad-based rules for entering a trade. If a pair is too far from its central point, I will stay on the sideline regardless of how appealing the rest of the setup may be.

There is a universal satire about the evolution of humans. The image usually depicts a baby turning into a grown man and later becoming elderly. In a similar but not so serious vein, price action traders are the same. We start out not knowing anything about indicators, so we set off on a mission to learn everything there is to know about them. The only difference is we go from not knowing anything about indicators to not caring much about them. They become a distraction and a nuisance rather than an advantage or a benefit. It has been the whole time. If you want to become a great price action trader, a clean chart is a must.

Attempting to troubleshoot complex indicator-based strategies is a nightmare. Just be sure to spend some time learning how to read price action. Whatever you do, keep it simple.

In fact, it should be just the opposite. Master one or two price action strategies at a time. Save my name, email, and website in this browser for the next time I comment. Thank you Justin, I have been using the 8 and 21 EMA trend lines to identify entries but really appreciate the great insights, which you have shared. I trade a small account so can you tell me if I can apply the same principle of market mean to a lower time frame eg.

The concept of mean reversion works in any market and on any time frame. Those deviations can make trading more difficult, which is why I prefer the higher time frames. Hi , Dear Justin, pretty and detailed explaination as always about indicators effects. You are absolutely right, raw price action is a basic foundation. Good day All said on the blog cuts numbers of years struggling and blowing accounts. Big up to your trading experience.

Too much clutter is not a good thing in fact its more confusing than not. Thank you for your invaluable guidance.

Your experience is similar to what most traders go through. The source of just about every indicator out there is price action.

Stock trading chart patterns guide

Thank you for a very insightful and detailed explanation, Justin. I completely agree with you. I was seduced by the automatic programming for a long time. I agree that a fundamental part of trading is psychology. Also it must have a well-sized account. I still have no clear ideas about stoploss.

Is useful? Having a large account, maybe you can even survive without. Anyway, thank you for sharing your experience.

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Whoever leaves lose. Who is tenacious in finding a solution won. Yes, a stop loss is very useful and necessary. Hi Justin yes I agree. I previously spent a lot of time trying to master various indicators and could not make my mind up which ones to use, but now just use a couple. Nko Nko. Thanks Justin for such info, may God richly bless you, i have just one question, what your take on Currency Strength Meter? Thanks Justin for another light. I have been using mostly Moving Averages mainly the and 34 but I am still struggling to keep a consistent gains.

As per your explanation in regarding the mean if I understood right the mean in your chart should be an EMA 15? And as a normal approach those 2 EMAs you use works better in trend markets right? Your posts and comments are helping me to tune up my trades so tahnks a lot for the time you put on this. Marcio, correct. I use the area between the 10 and 20 EMAs as the mean for a trending market. They become less useful when markets begin to consolidate. Is the market bullish when the 10ema is above the 20ema and visa versa?