Almost all forex traders use technical analysis and technical indicators. This raises the question: Does Forex Technical Analysis Work For Trading? The surprising answer is no, it does not. Technical analysis and indicators will produce a few pips here and there but traders will wind up churning their own account with at best a 50/50 chance of success. The most likely outcome is losses and frustration, and a trading account that goes sideways or down in value.
Forex technical analysis and all of the associated indicators are confusing and wind up costing forex traders large amounts of time and wasted effort. We will review forex technical analysis and indicators in this article, and we will also give forex traders much more logical and much better alternatives for very easily increasing the amount of pips that they can make.
What is Forex Technical Analysis
Web searches for “forex technical analysis” reveals a large set of confusing indicators. Trend lines, channels, candlestick patterns, Bollinger bands, RSI, Fibonacci, pivot points, point and figure charts, stochastics, oscillators, etc. and it goes on and on from here. It is endless, confusing and there is no logic behind any of the indicators, and forex traders are now worn out by all of this. The world of forex technical analysis has thousands of scenarios. There over 150 forex technical indicators and over 100 candlestick chart formations alone, and that is based on just one time frame or period setting. Here is a list of over 100 of the commonly used indicators. There is no way to verify the results of technical indicators on forex trading, much less combinations of such indicators, of which there are literally, millions.
Forex technical analysis is very difficult to define, since there are so many possible combinations of indicators, and the end user has so much discretion. Technical analysis basically has limitless possibilities, and the forex traders who use it every day more than likely would each give you a somewhat different answer if you asked them to define it. So in practice the actual definition of forex technical analysis varies.
Just pick one indicator at random like relative strength index. This index can be applied to any one of 10 time frames and you can start with RSI 14 (period 14) and see if it “works”. If it does not “work” then you can try RSI 15, 16 then 17 then it pretty much goes on from there. There is an infinite number of combinations from there. But remember all of these RSI periods are on just one time frame!! You would have to start over and try RSI for various periods on a different time frame and then go through at least 10 time frames seeing if it “works” again. The result will be a lifetime of research from the start but at the end of the day there are no pips in your trading account, or possibly financial losses. Many thousands of traders have been through this scenario, some frustrated for many years.
Do Forex Traders Use Technical Analysis?
Yes, the vast majority of forex traders use technical analysis and technical indicators. This is obvious from the many forex forums out there and the discussions taking place. We would estimate that 95%, maybe more, of forex traders use technical analysis and technical indicators.
Is Technical Analysis Enough For Forex Trading?
No it is not enough, as a matter of fact you can look forward to years of frustration and making a few pips here and there with technical indicators. In this article we will present individual currency analysis methods, which will open up 8 currencies and 28 pairs of pips to forex traders. The individual currency analysis methods are far superior to any technical indicators or combination of indicators that you will find. Forex technical analysis is a huge problem, but we offer a great alternative and solution for making pips.
Do Technical Indicators Work For Forex Trading?
The short answer is no. Look at the image above and total chaos of the indicators. Traders will never consistently make anything but a few pips with forex technical analysis and indicators. In a best case scenario it is hotly debated and highly disputed, but in real life they are completely worthless except for scalping a few pips here and there. The fact that this is hotly debated should be a warning sign to most traders. In order to prove something “works” you would have to get an independent research group or university students to design statistically significant tests in a controlled environment so that the specific indicators tested had a written procedure for use. Then a large group of traders would have to use the indicators correctly for a long period of time.
If you are interested in making a few pips here and there, yes they do work. If you are interested in making 75-150 pips per trade entry, with an occasional small loss or breakeven stop, they do not work at all. Forex traders have a paradigm that at the end of the week if they have made 25 pips that it was a good week. The paradigm for success should be 500 pips per week using much better trading systems than technical analysis and technical indicators.
Then the results of the trading and the study following the strict guidelines could only be reported based on the market conditions during the testing period. The overall forex market conditions could be trending, oscillating or choppy and we know that the forex market condition varies over time among these three. Also defining the market condition would have to have exact criteria not subjectivity.
Fundamental Flaw Of Forex Technical Analysis and Indicators
When you apply a forex technical analysis technical indicator to a pair you have already failed. You must first split any currency pair into it’ two individual currencies and then analyze each currency in the pair separately to be a successful forex trader. For example, to properly analyze the NZD/USD, split the pair into the NZD and USD and analyze each currency separately, to maximize your odds of success. Since all technical indicators are applied to pairs, all technical analysis indicators are immediately disqualified from ever working correctly, because they ignore the fact that there are two separate currencies in the pair. Forex traders want a trading system that is simple and profitable, forex technical analysis indicators provide none of this.
Who Is Pushing The Use of Forex Technical Analysis And Indicators?
Forex brokers push technical analysis very hard. The subsequently, traders begin to push the same technical indicators on forex forums and online communities. This is because technical indicators encourage traders to trade more frequently and perhaps make a few pips, which is just enough for them to keep their accounts open and give them some hope. Many other education websites and forex forums push technical indicators, because these sites are loaded with click ads from brokers to encourage opening broker accounts. All of this self-fulfilling prophecy results in no success for traders. Traders feel like they have no choice.
These indicators have proliferated across the majority of forex traders because the indicators are conveniently located on all trading platforms. When a new trader opens up a live or demo trading account with a broker, there is an assumption that the technical indicators that come with the platform will help them to make pips. In reality the number of pips you can make with these confusing indicators is highly limited to a few pips here and there.
Combinations of Forex Technical Indicators
Look at the example forex technical analysis chart above. Layers and layers of indicators, which are so crowded and chaotic that you cannot see the price chart. Forex traders deal with this every day, but there are much better alternatives with the individual currency analysis methods we will show you in this article.
If you use two forex technical analysis indicators together with different combinations of periods and time frames you now have, mathematically, an infinite number of combinations based on different period manipulations and time frames. If you devote the proper time to seeing if any indicators on one period and one time frame works properly, it would take a couple of months to demo trade each scenario to see if that particular combination of indicators was effective, or in almost all cases, ineffective.
If you project this over 100 indicators and multiple time frames, you have just spent your entire lifetime seeing if a handful of indicators “work” and you never placed one trade you just kept testing and testing indicators with no proof anywhere that they actually work. Knowing that there are over 150 different indicators, 10 different time frames, and infinite combinations of period adjustments, I can say that actually defining technical analysis is now not even possible for most forex traders. Development of good forex technical analysis strategies becomes impossible and traders fall into this abyss, desperate for simpler alternatives.
Also, since almost all forex traders use technical analysis or forex robots based on the same indicators we have just defined hundreds of thousands of traders wasting thousands of hours each testing indicators that don’t work for months or years of their lives.
Strong Alternative To Forex Technical Indicators
The reason forex traders should not use technical indicators at all is because these indicators do not consider whether or not the base currency is strong or weak or neutral, then repeat the process for the cross currency. Without this information failure is sure for any trader who uses them.
If you are a forex trader that is ready to dispose of forex technical analysis indicators in favor of logic and common sense, this trading system should be for you. There is a simpler approach to forex trading that is far superior to technical indicators. This is based on the fact that currency pairs are comprised of two separate currencies, and this fact can and should be leveraged by traders with parallel and inverse analysis on a day-to-day basis.
A much simpler approach to forex trading would be when one currency is strong on a pair and the other currency is weak to consider a trade. This basic approach is what we use in the Forexearlywarning trading system, and it works. Forex technical analysis indicators do not measure these individual currency strength quantities and the technical indicators are fundamentally flawed. Technical indicators do not take individual currency strength or weakness into account and therefore, can never really be effective.
Start by setting up some simple forex trend indicators and arranging them by individual currency. For example, all of the JPY pairs would be side by side in a group. If the USD pairs are all grouped together, like shown below, then traders can more easily determine if the US Dollar USD is strong or weak with all 7 USD pairs moving in the same direction. This is much simpler and more logical than forex technical analysis indicators.
Once the pairs are grouped together like this, traders can use great tools like our forex market analysis spreadsheet to determine if up to 8 currencies are consistently strong or weak. We also analyze the forex market trends every day using these individual currency techniques. For example, if we want to perform an analysis of the USD/JPY, we analyze all of the USD pairs together, and then analyze all of the JPY pairs together. The results of this analysis technique will give traders the condition of the USD/JPY. We will know if the JPY is strong or weak, and if the USD pairs are trending or ranging, so we can prepare an accurate trading plan for the USD/JPY or any other pair. This analysis method can be repeated for any currency pair with some simple moving averages.
The next step in simplifying your forex trading is managing trade entries. Look at the system below. This live signal system for trade entry management is called The Forex Heatmap® forex heatmap. This system is not tied to any forex technical analysis indicators and works great for managing all of your trade entries for 28 pairs. The buy and sell signals are clear for the GBP strength, and the JPY weakness, resulting in strong movement on the GBP/JPY pair. Isolating the currencies and individual currency analysis is a clear winner for making pips.
Using momentum-based trade entries will result in much more success, and additional pips when trading in the direction of the trend. Look at the above example. 75 – 100 pips were easily possible on one trade in one trading session, and multiple pairs could have been traded for even more pips. You can set price targets with support and resistance levels of the 28 pairs we follow. Drilling down the charts daily across 8 currencies will allow you to set trading plans for the best available opportunities and trends.
Conclusions about forex technical indicators and analysis: So now traders have a set of professional tools and a complete suite of forex alert systems to assist with market analysis and trade entries. These simpler systems are easier to interpret than forex technical analysis indicators. If traders add in other system components like the forex news calendar and scheduled news drivers, you have begun building a complete forex trading system, without any standard forex technical analysis indicators of any kind. This great trading system is fully detailed on our website, and it is the best forex trading system in the retail forex trading space.