Trading – The Best Technical Indicator

I wasn’t entirely sure that I was going to be blogging about trading again in some way with my new blog. But since some of you have continued to email questions on FX trading (you’re all clearly obsessed) I guess I’ll go ahead and start a small segment on trading. Keeping in mind that I’m a pure technical (chartist) trader and that my views on trading will always be relative to how I trade the FX market.

Probably one of the most common questions that I get a lot is, “What indicators do you use?”. Let’s put this one to bed…for the most part I use no indicators. You’re probably in shock and utter disbelief. Don’t get me wrong, I’ve probably used and tinkered with almost all of the mainstream technical indicators and most of the lesser known ones as well in the past 8+ years that I’ve been trading. In the end, I’ve come back to the one indicator to rule them all…price action. Ironically, this also happens to be the least understood aspect of trading by a vast majority of wannabe traders.

Most people I’ve talked to who have been trading unsuccessfully for months or even years have no idea how to interpret price action (movement) on its own. Personally, by using multiple timeframe analysis I’m able to find trading opportunities and time my entries/exits based on those opportunities just by looking at price action. By price action I mean studying the actual price bars (in my case I use Candlesticks and Heikin-Ashi), the levels they form on the charts, and how they behave when they revisit those levels. Ultimately, when you trade any financial market you have to remember that traders for the most part are not trading the movement of Relative Strength Index, MACD, Slow Stochastics, or any other technical analysis indicator…they’re trading price. If they do use indicators then it’s only to confirm their opinion of what the price action is telling them.

So, the moral of this trading blog post is: Learn to read and trade on price action; use technical indicators only to confirm your opinion of the price action (better yet, don’t use indicators at all).

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