A lot of Forex traders base their decision on one form of technical analysis or another. For those of you who don’t know what technical analysis is, it’s the practice of basing your trading decisions of the charts themselves only and not on news, analysts, and so on. Technical analysts believe that everything is already portrayed in the current market prices anyway, so outside information has no bearing on your decision.
Technical analysis also allows you to trade much faster than following the news, analysts and so on (what is known as fundamental trading) because you don’t need to read all that much, you just need to follow the charts.
Technical indicators are data which is calculated out of the price charts and provides you with additional statistical data. For instance, a 50 MVA indicator will provide you with a graph which calculates the moving average of the last 50 time frames.
When you use a charting software which you can get with any good broker, it is easy to add many indicators in.
Different technical analysis methods use different indicators. There are so many that it’s impossible to keep track of them all. Each indicator has its pros and cons. The question I want to deal with today is how many indicators you need to work with.
On the one hand, the more the merrier, right? And indeed, smart Forex marketers try to dazzle new traders with methods that take into consideration multiple indicators. It seems that the more indicators you use the more accurate your system will be.
This may or may not be true, and I don’t think that it is, but the real reason why you can’t use a lot of indicators is that the more you use, the harder it becomes to trade. With each indicator you need to make sure that the current market conditions meet the requirements of a new trade.
If you plan on using 10 indicators, you need to check 10 things before each trade. If you’re using only 4, you will save 60% of your time and effort on each and every trade.
What this means is that the fewer indicators a method utilizes the better. Of course, the method needs to be able to provide you with the high probability trade ideas, otherwise, it’s useless. However, you can and should aspire to use as few indicators as possible.
There is no magic number of indicators. It’s just another factor you need to weigh in when decidind upon a trading method.
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