Forex Technical Indicators - Are They Confusing You?

Forex Technical Indicators are a series of tools created primarily to measure volatility, like the stochastic indicator, or to smooth the zig zag of the market, like a MA or moving average. It is important to realize that all indicators are trailing indicators. They are excellent at telling us what the market just did, but they will never be able to tell you what a market is about to do.

Many fail to understand this distinction. An indicator is used primarily as a tool to assist in the traders pattern recognition. Not to predict the market. Let me explain further.

When you spend large amounts of time, manually back testing with a pad and pencil. (And if you are not performing this at least 2 or 3 hours a day, you are missing out on training that is worth its weight in gold) You begin to develop a bit of sixth sense. My own back testing is set up, so I can scroll one bar at a time to the right (the future) this allows me to play a little game of recognize a pattern and predict what the price will do next.

After just 5 to 10 hours of this type of self training, you really begin to discover patterns in the pricing chart that are predictable. Leading indicators like the EMA (exponential moving average) are excellent to have up along with the pricing, because it gives you a visual point of relevance. For example, when the price is very far above or below the EMA, you know the price is in an extreme state, compared to where it was, your gut immediately tells you the following price action will at some point be coming back to the EMA This is a type of pivot point trade.

As you manually back test, you will find many types of "set ups" in the price action. These set ups are typically cataloged and recorded by professional traders who actively look for certain price formations that have a high probability of doing what the formation predicts.

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