Forex traders are usually split into two camps: one band of Forex traders prefer using technical indicators in their trading strategy, and others absolutely despise using them.
I don’t go so far as hating indicators, but I’ve found more success with pure price action trading rather than depending on technical indicators.
In this post, we’ll take a look at why technical indicators can be a bad thing and how you can incorporate price action trading as a cornerstone of your trading strategy.
Why you should embrace trading without indicators
Technical indicators are extremely popular in Forex trading and indeed in any kind of trading. There are hundreds, if not thousands of indicators available for MetaTrader 4, MetaTrader 5, and even TradingView.
So even though there are so many supposedly surefire indicators out there, how come most retail Forex traders are still losing?
Leading vs lagging indicators
One of the most important things to remember about any trading indicators is that most indicators are lagging.
This means that indicators will show you data based on what has already happened. Indicators are unable to magically get data that you can’t already see on the charts.
Instead, trading indicators process data which is already available on the chart and present a different angle on it.
Moving averages, for example, are plotted based on existing price movement. The moving average line will only print after the candle has already closed!
Similarly, the MACD, RSI, and Stochastic oscillators are all based on historical data as well.
So if you just blindly get into the market every time an oscillator is overbought or oversold, you’ll be in for a bad time.
Overbought and oversold conditions only show that everyone is selling or buying. These conditions are not leading indicators of an upcoming reversal!
Indicators are distracting
When I started Forex trading, I was a big believer in using trading indicators for technical analysis.
I tried to build my trading strategy around using indicators because most of the “gurus” back then were big proponents of using them in their trading strategies.
In fact, in the early days of my trading, my chart had 8 different indicators!
Here’s what used to be on the chart:
- Five exponential moving averages: 200, 55, 21, 8, 5
- Stochastic oscillator
- Pivot points
On top of that, I’d also draw multiple Fibonacci retracements to try and find continuations and reversals, as well as trend lines and horizontal levels.
This ended up making my chart look like a mess, making technical analysis nearly impossible 🙂
In addition to so many indicators, I also had multiple currency pairs open in multiple timeframes!
Of course, I was a beginner back then, so more indicators seemed like a better idea than trading without indicators.
It was only after many years of watching the charts and failing at trading that I realized that trading without indicators was actually easier than getting distracted by them.
Indicators give signals at random times of the day
Aside from the fact that indicators can unnecessarily complicate your trading strategy, the biggest gripe that I had with using indicators in trading systems is that I’d never get an entry signal based on my rules whenever I came to the charts!
I’d fire up the charts only to find that I had missed the boat, or I’d sit around waiting for a signal to come, only to finally leave the charts and see a signal had formed shortly after I left when I opened the charts the next day.
Since most indicators are lagging, they don’t really show what’s going on in the market right now.
So even if you come to the charts at a high volume time like the London open or the New York open, you may not find an entry signal on your favorite trading indicator only to watch the currency pair move 50 to 100 pips right in front of your eyes!
Indicators only work in certain market conditions
Forex trading is often sold as a get-rich-quick scheme, and lots of snake oil salesmen like to sell indicators and expert advisors that supposedly are never wrong and have massive win rates.
The biggest flaw to indicator-based and rule-based trading is that this trading style needs to be adapted to different market conditions.
In certain conditions, price movement will change, invalidating the signals given by indicators and expert advisors.
It’s time for another story!
Back in 2010 and earlier, the EUR/GBP was one of the most boring(but reliable) currency pairs out there.
Price had been trading in a particular range for many years, and so there was a EUR/GBP scalping expert advisor that simply took a short every time price hit a particular resistance, and it took a long every time price hit a particular support.
Just around that time, the EU announced a major monetary policy shift and price broke the resistance for the first time in many years.
The result? I lost a couple of thousand dollars because the expert advisor was not programmed to liquidate positions if price deviated too far from the support or resistance!
Psychology is stronger than indicators
Oscillators are quite notorious for showing overbought and oversold conditions.
For example, during the market crashes of 2008, 2020, and 2022(now), as everything is weakening against the US dollar and Gold is moving up, oscillators will show overbought or oversold conditions.
This may tempt a newbie trader to try and spot a reversal when you should really be looking to continue riding the momentum!
Market psychology is stronger than any indicator in the world, which is why a price action strategy that you trade based on what’s happening right now is always more effective.
Additionally, not everyone uses the same indicators, so everyone else isn’t even if you’re seeing a particular signal!
The same cannot be said for support and resistance levels. If price is approaching a major, obvious support and resistance level that price has wicked off of and rejected multiple times, everyone is seeing the same thing happen on their charts.
Indicators can complicate your process
Being over-reliant on indicators in your technical analysis can end up leading to analysis paralysis, causing you to second-guess yourself.
What’s worse, this trading method can end up giving you worse signals, exacerbating your losses.
Also, the more indicators you have on your charts, the more difficult it is to line them all up in your Forex trading strategy.
This is because one indicator might end up invalidating the other!
You may see a buy signal with moving averages, but you may end up seeing a sell signal with an oscillator: so what do you do now?
That’s why relying on a price action strategy when you trade Forex is better than relying on a technical indicator. Price action strategies are based on exactly what you see on the charts rather than complicated calculations from an indicator.
Price action trading strategies
Up until now, you’ve listened to me bash indicator-based Forex trading and extol the virtues of price action trading.
So what’s a good price action trading strategy? How is trading without indicators possible?
Let’s dive in!
Support and resistance levels or zones
The foundation of any technical analysis is based on support and resistance levels or zones.
If you pull up any chart, you’ll see that price moves from one zone to another. It doesn’t matter if you’re swing trading or day trading, these principles apply to any time period.
Sometimes, price will respect a zone and reverse from it.
Other times, price will hesitate, then break through a zone.
Or price may just power through the zone as if it did not exist.
Or price may break through a zone, only to reverse and close back inside it.
Observing how price behaves at support and resistance levels will help you try to ascertain the probability of where price will go next.
For example, if price rejects a support level multiple times, then starts to climb higher, chances are strong that it will find its way up to the next resistance level.
On the other hand, if price breaks through a support level and is unable to close above it again, chances are strong that it will find its way down to the next support level.
Higher highs, higher lows, lower highs, lower lows
A successful price action strategy involves understanding how price moves in between zones, too.
When price is trending up, you’ll see that it makes higher highs and higher lows.
When price is trending down, you’ll see that in makes lower highs and lower lows.
You can observe how price is making highs and lows to plan when to get into the market, and you can use support and resistance zones as potential targets to get out of your trade.
The beauty of using support, resistance, and price action is that you can observe this happening on the charts no matter which trading session you join in.
You don’t have to wait for an indicator to give you a signal: instead, you can just observe what price action is doing and plan your trade around that.
Candlestick patterns are very popular with some price action traders. Chart patterns range from larger patterns like double tops, double bottoms, head and shoulders, flags, triangles, pendants, to smaller patterns like doji candles, shooting stars, pin bars, hammers, and spinning tops.
While all chart patterns are useful in their own right, the best way to utilize them properly is to understand the underlying psychology behind why a certain pattern forms.
For example, what does a bearish pin bar indicate?
A bearish pin bar shows that buyers tried to push price up beyond an area of resistance, but sellers stepped in and pushed price back down.
What does a head and shoulders pattern indicate?
A head and shoulders pattern shows that buyers tried to push price up, but sellers stepped in at a certain point and pushed price down again: that’s the left shoulder.
Then buyers decided to step in again and pushed price even further up, only to be met by selling pressure again: that’s the head.
Buyers then decided to make one last stand, pushing price up to roughly the extent of the left shoulder, only to by met by sellers coming in with a vengeance: that’s the right shoulder.
Essentially, the head and shoulders pattern shows that buyers tried 3 times to push price up, but failed, so there’s a strong probability that price can reverse and start going in the opposite direction.
These are just two examples. The point that I’m trying to illustrate is that understanding the underlying price action will help make you a more profitable trader in the long run.
Profitable traders who don’t use indicators
The proof is in the pudding when it comes to showing that price action trading and trading without indicators is better than relying on multiple indicators.
Here are examples of three individuals who have made Forex trading a full-time career and have made a fortune through Forex trading using a price action strategy.
I started becoming profitable after following Raja Banks’ trading style and philosophy. Raja trades based purely off of price action, and he only trades for a few hours a day during times where there is a lot of volume in the market.
Raja has a very active community of successful and aspiring Forex traders.
Nial Fuller is more of an old-school trader in the sense that he only trades off of the daily time frame. His strategy is also purely price action and most of his entries are based off of doji candles at significant levels.
TechnicalGods is a YouTube channel and trading community run by RayVaughn. I recently discovered his channel. He also teaches an incredible price action strategy that utilizes order blocks to take very targeted sniper entries that yield huge risk to reward ratios.
Don’t forget risk management
The best price action strategy in the world or even the most accurate trading indicators only take you so far in your Forex trading career.
The key to not blowing all your capital but instead growing it over a long period of time while being consistently profitable is to understand the risks involved and manage them accordingly.
If you’re interested in learning more about risk management, we’ve written an in-depth guide here.