Technical analysis is a topic that divides online trading communities. Your first thought might be that traders are bickering about which indicators and technical analysis setup will deliver the best results. But as a matter of fact, traders are normally debating the concept of Forex trading without indicators.
The idea of trading without indicators might seem controversial. Yet, there is a growing tribe of Forex traders who are creating and advocating Forex strategies without indicators or technical analysis. While we know there are some fair arguments against using too many indicators in your charting set up, some traders go a step further to proclaim that no indicators are needed for a profitable and sustainable Forex trading strategy.
We examine the idea of Forex trading without indicators, expanding on the concept below.
Is There a Problem with Using Forex Indicators?
The problem isn’t so much with using Forex indicators themselves, but how many of them the traders try to use at once.
It’s well known that too many Forex indicators can lead to confusion, conflicting messages and misleading signals. If you wait for too many confirmations from a variety of indicators, you may find that when you finally make your decision, it’s too late to get a decent entry point.
As all your indicators align to show a consensus on the trend you had hoped to ride, it could have exhausted itself or left you with just the tail end of a generous price movement. Getting in too late means, you miss out on a chunk of profit and get in at the risk of reversal grows.
Why Forex Traders May Avoid Indicators
MetaTrader 4 or any other popular trading platform is loaded with dozens of technical analysis indicators. There are even several flavours of moving averages. Most new traders feel compelled to study them all, then with all that overlapping information, try to apply it.
Some new traders may even find themselves descending into the rabbit hole of third-party indicators looking for the holy grail, never to find it. The next step after that? Googling phrases like simple Forex trading strategy with no Indicators, another long road to nowhere.
Forex Strategies Without Indicators
Primarily, trading without indicators is supported because the methodology focuses on current market movements, not historical ones. These traders look at current prices, as opposed to previous prices. This trading strategy is known as price action trading and is applied to small timeframe intraday trading.
The critics of price action argue that the methodology of day trading without indicators relies on instinct and listening to your gut, similar to betting. However, price action trading goes more in-depth than using intuition. The technique is usually adopted by mature traders who have multiple years of Forex trading experience under their belt. What the critics fail to understand is that Price Action trading does exclude typical technical analysis indicators, but it doesn’t mean that no indicators are used whatsoever.
Forex Indicators That Give an Edge
Price action traders and others, hold the opinion that everyone is using the same indicators. Banks, market makers, brokers, algorithms and tens of thousands of self-taught hobby traders all boast the same tool kit. So if you’re making your moves the same way and at the same time as everyone else, you’re always going to be too late.
If you’re going to be ahead of the pack and your entry point in before a market breaks out, you need to get your insights some other way. Instead of using indicators like moving averages and Bollinger bands, price action traders focus their attention on candlestick patterns and interpret different shapes and formations. This is as real-time as it gets. Or is it?
On most trading platforms (probably all of them), the smallest time frame on a candlestick chart is 1-minute. Suppose you are trading a price action strategy, that means your observing data that can be up to 59-seconds old. It’s a fallacy that candlestick charts show real-time price action data. Another misconception is that every trading indicator uses previous prices then they can only tell you what’s already happened, right? Wrong.
There are a plethora of trading indicators that operate on real-time data and show very actionable information that can support the decisions made by a short term price action trader.
Let’s explore some examples of real-time tools that allow you to enjoy an uncluttered chart while day trading without indicators.
View the Depth of Market (DoM)
By having access to the order book of the market, your trading can give you valuable insight into the depth of the market. The order book shows resting limit orders from other participants and updates, and new limit orders are added and matched with market orders or other limit orders.
The formation of the DoM shows how the price is moving on a more granular level. This indicator even gives you a snapshot into the future. What you are observing are orders that haven’t been executed yet. Unlike typical order books, our indicator includes a separate area where open positions are shown separately from pending orders. If you want to know more about how you can use an indicator to see into the future, check our Order book indicator for MT4.
See the Sentiment of the Market
A lot of traders use indicators and price action to try and predict what the market is going to do before it happens. What if you could know what other traders actually are doing?
We’ve created a sentiment indicator that gauges sentiment based on data from a variety of brokers such as Saxo, Oanda and IG as well as other community sources like Forex Factory, Myfxbook and our very own FXSSI community.
If you want to see what other traders are thinking right now, check out our Current ratio indicator for MT4.
See how Committed the Market is
Knowing whether traders are long or short is one thing, but what if you could know how committed traders are?
We’ve built an indicator that allows you to see the volume of open long and short positions and orders, which indicates the weight of the market’s expectations.
With this sentiment indicator, you can see how long and how short the market is and know the weight behind the sentiment. Check out our Open interest MT4 indicator to see where your trading peers are putting their money.
Is it Possible to Trade Forex Without Indicators
It is absolutely possible to trade Forex without technical analysis indicators successfully. How you interpret and apply the information from your trading platform is unique to you. If indicators don’t work for you, don’t use them. Other people should not dictate their trading setups, and you should not listen to them. The objective is to pin down a system that works for you.
The key message we hope you take away from this article is that not using technical analysis tools doesn’t mean trading completely naked. There is a large variety of price and sentiment indicators that can assist price action trading strategies and other methods focused on reading the current price behavior, not past prices.
One of the areas where we specialize is in consuming real-time data from various sources to build different indicators that can be plugged into your MT4 trading platform and effectively complement your Price Action trading strategy. You can take a look at our nine different sentiment indicators here.