The Forex market has its own language. This language takes the form of price movement. In order to understand and “speak” the language of the market you must learn how to read the price action that occurs on a clean, indicator-free, price chart.
Everything that happens in a market is ultimately reflected via price on a price chart. So, when you learn to interpret and trade price action, you are simultaneously interpreting and making sense out of all the global economic variables that can affect a market. Where many traders go wrong is in assuming that they will be able to read the market more effectively by trying to interpret news, indicators and (or) trading software. This is analogous to believing that you will have an easier time driving down the road on a dark foggy night than you will on a clear sunny day. Allow me to explain…
• Forget About Forex Trading Robots and Trading Software
One of the main problems with all the Forex trading “robots” and other trading software on the internet today is that they do not possess the human traits that can literally make or break you in the market. Robots and trading software are futile because they cannot develop a savvy trading sense and an “eye” for the market. Identifying Forex market bias and picking your trades wisely is a key component to what makes a trader successful over the long-term. Our current level of technology simply cannot produce a trading robot that has the ability that a human being can obtain to analyze and trade the market.
Furthermore, the claim of trading software designers that their products eliminate the problem of human emotion and discipline is entirely false. There is still a human behind any trading program, that human still must be disciplined enough to not over-ride the program or “meddle” with it. If you can’t follow a Forex trading plan that you design, you won’t be able to follow a piece of trading software either. So, it appears as though the main variable in trading success is the particular human doing the trading, not having the “best” and fanciest sounding trading system.
In the question of which is better; the human mind or computers in Forex trading? , the clear winner is the human mind, however, it must be developed and trained properly first. So much of trading success is a result of personal development; you are very unlikely to see some out-of-control unorganized slob become a consistently profitable trader. Very often people who have a knack for discipline and organization are good traders.
• Ditch The Indicators and The Mess
Indicators are derivations of price action, so why not just learn to read the price action? Why would you purposely make trading harder than it already is? By putting messy indicators all over their charts that’s exactly what many traders do; they are simply making the natural price action clues harder to interpret. Indicators give no advantage, and in fact they actually just confuse and frustrate you by making the “real” picture of the market harder to decipher. Each indicator that you put on your chart basically just separates you further from the real story of the market.
You don’t want to purposely create a mess all over you charts by over-laying a bunch of indicators that are simply telling you what the raw price action is telling you but in a more confusing format. Just like having a clean work-space is important to success in any field, having a clean chart (and a clean office) is critical to Forex trading success. (Don’t end up like this guy…..)
Traders have a tendency to get excited about new indicators; they think that an indicator will somehow show them the market from a more advantageous perspective or that it will somehow give them “perfect” entry and exit strategies that will take the guess-work out of trading. I am here to tell you that successful trading is about developing your ability to analyze price, maintain discipline, and generally just control yourself in the market. Nothing else. Don’t let fancy sounding and looking indicator-based systems fool you. I was fooled by them early-on in my career, they did not help me achieve success in the markets, learning to read price action did. Trading with indicators will destroy Forex trading success.
• News Trading Is Unnecessary
There is nothing inherently wrong with getting yourself up to speed on current Forex market news and other global economic events. However, many traders take it too far and end up trying to trade off THEIR interpretation of what MIGHT happen based on some news event that has either just happened or is about to be released.
The problem with this line of thinking is that price movement is fueled largely on human emotion or feeling about what is most likely to happen, not necessarily on logic. In other words, traders trade their beliefs about a market, and when an economic news release is pending, traders tend to trade based on their expectations of how the news will affect the market. So, once the news ACTUALLY comes out, the expectations have changed, and traders now have nothing to “bet on” in the near term. This is why price will often move the opposite direction from what is implied by a particular economic news release.
Good news! The good news is that price action strategies form as a result of people trading their expectations and beliefs about a market. So, by simply learning to trade these price action strategies we can forget about over-analyzing and interpreting the vast amount of news events that occur each day in the market. Think of price action as the final result of a catalyst that causes a market to move. Whatever the catalyst (news event) is, it will eventually be filtered through either a human brain or a computer trading program, and both of these will make their mark on a plain-vanilla price chart. By learning to read these “marks”, we are getting the most accurate and relevant “picture” of the aggregate belief structure of all market participants. Meaning, learning to trade based off simple price action trading setups is the most efficient, effective, and easiest way to trade.
• Learning Price Action Is Key
If you truly want to clean up your trading and turn it around, you need to clean up your charts. Every other system is just a derivative of price anyways; robots / indicator systems, they are all built from price. Learning price action is the key to your Forex trading success.
Price action aids you in developing the best mindset for trading. We need a clear and confident mindset, learning to trade off price action does not cause the amount of confusion that other trading systems or strategies can. When you trade off an unencumbered price chart you are seeing the clearest and most accurate picture of the market possible. Once you learn to interpret and identify a handful of high-probability price action setups you can effectively trade without indicators or other messy distractions on your charts. Doing this is the easiest thing you can do right now to greatly increase your chances of success as a Forex trader.