There is no magic in technical indicators in and of themselves as they each can tell you something about the market’s behaviour at any given point in time. Nor is it true that any one indicator is better than another.

What is key to using technical indicators successfully is to select only a few that complement one another and use them in an uncommon manner along with powerful trading tactics.

Most trading methods share the technical indicators they utilize for identifying potential trades — the key to being successful with these indicators is to understand their application and their impact on the selection of trade.

The tendency for many amateur traders, however, is to over-complicate this process. They want to use too many indicators or patters, and they think that success is dependent upon something being highly complex. Nothing could be futher from the truth — in fact, simple is better:

1. Using too many or the wrong indicators is counterproductive, as the information that those indicators provide is counterintuitive and just plain misleading.

2. Using a few simple indicators in a uniquely powerful way can provide the right information necessary to make good trading decisions.

3. With the right indicators and patterns, you will be far more likely to trade with discipline because you will be able to understand an objective set of rules that the right indicators and patterns can provide.

In short, you are best off keeping it simple and applying a smaller set of indicators to identify the best possible trades — and avoid making ‘complexity’ a qualifier for determining whether a method will work or not. You’ll likely find that the simpler the method, the more successful you’ll be with it.

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As you already are aware, there are two primary forces acting in the Forex markets: fundamental data, which include such indicators as balance of trade data, money supply, interest rates, economic and financial reports, etc.; and technical data, which include such indicators as moving averages, average directional movement, stochastics, etc.

So, why should a forex trading method be focused on technical indicators?

First, attempting to trade on fundamental data requires you to be available on a real-time bases at whatever hour of the day or night that the news impacts the markets, and, you must be able to act on that news before (predictive) or at the instant thousands of other forex traders do (reactive), otherwise, you will have missed your opportunity.

Trading on fundamentals, as well, is less about the actual data itself and more about the market’s reaction to that data.

Technical analysis, however, allows the trader more time to make a smart decision. Utilizing technical indicators means the fundamentals are already reflected in the price of the market at any given instant.

While this means you are working more often with slightly lagging indicators, the advantages to using a forex trading method based on technical analysis mean that you spend less time identifying potential trades and when you have identified a trend and look to enter a trade, you have much more data to support the trend’s existence than if you are simply trading on the ‘news’.

Furthermore, by using technical analysis and applying it through a trading method, you can trade the markets on your own terms, when you want to trade and how you want to trade them, without needing to grasp the minute details of what fundamental reports ‘really’ mean.

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