Do technical indicators work in Forex?

Honestly, if you think that by studying technical indicators you are going to find the secret to become rich trading the markets you are going to be disappointed for a long time.

However, that is what urban myths about trading and investing lead us to believe.

Apparently there must be hundreds of thousands of traders making a living out of Forex by following Technical Analysis.

By the way, what does not work in Forex will not work in other markets either.

We have two types of indicators basically: trend and oscillators.

The trend ones will try to determine if an asset is in a definite direction in a certain period of time, whether it is rising or falling.

Forex indicator
Inicators are good for “complexity” and trying different algorithms but not very good for clarity

The latter try to measure two opposite forces and are supposedly good to tells us when a market is ready for a reversal.

Forex indicators

Besides those we can use the volume and things such as market sentiment, as extra indicators, although these ones are not based on the price.

Then, if Forex indicators are based on the price, why not just use that one?

The answer is that indicators seem more sophisticated, but it is just in appearance.

Another answer that supports the use of indicators is that traders need some parameters to build their systems and that is something that indicators can provide easily.

You can use a MACD or a stochastic and set orders when the price crosses certain line.

With simply the price it will be more difficult to do that.

Price is something that only manual traders use.


Forex intraday indicators

Of course, it is in the day trading community where the use of indicators is strongest.

Apparently the day trading charts give us the same patterns that long-term ones.

That is what graphs tells us, apparently.

In theory, a five minutes bar graph shows us the same kind of patterns and opportunities than a day bar one.

Both graphs allow us to use Bollinger, Moving Averages, MACD, RSI, stochastic, etcetera.

However, as Nial Fuller explains in some of his articles, practically all movement in the graphs of less than 4 hours bars is mostly “noise”.

He found out that trading signals gave a big deal of failure in those time frames.

Fuller came to the conclusion that the great majority of Forex indicators are redundant; realizing that one of the major problems of people approaching to Forex and the markets was the excessive use of trading indicators.

I think that if you spend enough time trying to do day trading with different indicators you will reach the same conclusion.

Forex strategies without indicators?

In the case of Fuller, he only uses what he calls price action, based on the behaviour of candlesticks and applying it in long-term charts, as the daily bar ones.

I have to say that I am not sure that this model could work to achieve a good yearly return regularly, something like 15% average.

I have my reservations about it, although I give it the benefit of the doubt.

What I can say, at least, is that the system will not give huge losses as most of day trading systems do.

Forex without indicators

I think that the Forex market is the one where there are more automated traded systems in the World.

These systems reach tens and hundreds of thousands and are renovated every year.

This is so because the supposedly good systems do not usually last too much giving their promised “great profits”.

It is possible that we can find some system that is based in some indicator that works for the long-term if we try to trade trends that last weeks and months, although it will not be easy to achieve.

Forex systems are very beautiful in theory.

When we put them into real practice things change a lot.

However, those who design the systems based on any indicators make quite a lot of money regularly.

My advice is that for effective trading you do not need indicators of any kind.

If you follow the price it should be more than enough.