The Authority’ on Price Action Trading. In 2016, Nial won the Million Dollar 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, day trading forex with price patterns technical analysis 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.
The over-arching theme of such indicators is that you have to follow specific rules to use them. This means you have to be sitting in front of your computer waiting for the indicators line up exactly right before entering a trade. Let’s now look at a couple examples of charts with the Stochastic and MACD indicators on them compared to the same chart with no indicators but only price action setups marking the important trading signals. Now compare the above chart to the exact same chart below with nothing but pure price action setups and support and resistance levels marked.
It becomes clear when you do an exercise like this that trading off pure price action is much more logical and advantageous than trying to draw the same ultimate analysis from something OTHER THAN price. The chart below is a daily chart of gold. Notice how the Stochastic indicator was showing an over-bought condition for multiple months in 2010 during what was a very strong and vigorous uptrend full of many profitable price action entries. The arrows in the chart above each mark a price action setup that I teach, if you had been trading this uptrend in gold last year you would have obviously been much better off just trading the price action rather than trying to over-analyze and over-complicate everything with a bunch of messy indicators all over your charts. If it is not extremely obvious by now why price action trading is a far superior forex strategy than any indicator-based strategy, it should be. If you want to truly understand price dynamics and the mechanics of financial markets, you need to learn to analyze price action on an indicator-free price chart.
Price action is great because you can form decisions about future outcomes and direction with greater accuracy and speed than any other trading method because price action is the most current market analysis tool there is. Excellent articles, for as long as i live i’ll never have another indicator on my chart! Niel about price action,i was very confused and didnt understand those messy indicators,as a beginner i almost gave up. Cry of joy have over-taking ME seen i started reading your article my trading have seriously changed. GOD HAVE ALREADY WIPE AWAY MY TEARS.
I noticed this problem in 2011 and since then I only use indicators as a visual aid. I think indicators are a distraction. If you must use them use more stable ones. I just had to let you know that i am an AVID reader of all your newsletters. I find them not only inspirational but it gives me a wow factor cause your advise is simple and realistic. God Bless You for sharing all your insights in such a thorough but efficient manner. After bumbling around indicators for years the light is coming over the horizon.