The Authority’ on Price Action Trading. In 2016, Nial won the Million How to start a forex trading fund Trader Competition.
Essentially, when traders use indicators to make their trading decisions, they are getting a distorted view of what a market is doing. So, essentially, the only real use that lagging indicators have is in helping to identify a trending market, and I do actually use certain moving averages to aid in trend identification. The problem is that no one ever knows how long a market will trend for, so you are going to have a ton of false signals before the actual top or bottom of the market occurs. Let’s take a look at the way many traders try to trade with lagging and leading indicators all over their charts, and then let’s compare this to trading with nothing but a plain vanilla price chart and price action. MACD, Parabolic SAR, and a few moving averages. You can quickly see just by looking at this chart how confusing it is, and you can also see that there are a lot of unnecessary variables on this chart. Now let’s look at the same chart with no indicators at all, there is nothing but pure price action and a couple of horizontal lines drawn in to show significant support and resistance levels.
It’s obvious this chart has less clutter and less confusion, all it shows is the natural price movement in the EURUSD. By learning to read this natural price movement and the conditions it occurs in, we can trade in a very simple yet effective manner. It is also worth noting that due to the fact that there are no indicators underneath the price, like the MACD and Stochastic in the above chart, you have a completely uninhibited view of price which allows for a less distorted and larger view of the price action than if you had multiple indicators taking up the bottom portion of your screen as can be seen in the chart above. As we can see in the above two images, the clarity that you get when trading off indicator-free, pure price action charts, is very obvious and significant. Having less parameters to analyze causes your brain to work more efficiently and allows you to rely more on your own natural trading instincts.
Stochastic and MACD, and then compare them to trading with pure price action. Understanding how the stochastic is formed is one thing, but knowing how it will react in different situations is more important. K peaks just below 100, then heads downward, the stock should be sold before that value drops below 80. D, then a buy signal is indicated by this crossover, provided the values are under 80. If they are above this value, the security is considered overbought.
The above information about the stochastic oscillator is quoted from investopedia. To bring in this oscillating indicator that fluctuates above and below zero, a simple MACD calculation is required. 12-day moving average of its price, an oscillating indicator value comes into play. MACD illustrates buy opportunities above zero and sell opportunities below. Another is noting the moving average line crossovers and their relationship to the center line. The above information about the MACD is quoted from investopedia. From the above two descriptions of the Stochastic and the MACD indicator, we can see it almost hurts your brain physically to read all the parameters involved in calculating them and how exactly they are to be used.