Focus on Price Action and a Few Valuable Tools and Indicators

Did you ever see a chart that is full of indicators? Or did you ever use or analyze a chart that has dozens of tools on it?

When too many indicators and tools are on the chart, analysis becomes blurry and unclear and trading becomes a guessing game and not a business decision. Traders then encounter a well known problem called ‘paralysis of analysis’.

RULES AND STEPS

To avoid confusion when trading, Forex traders must, at all times, implement a clear trading plan which follows simple and logical rules and steps:

• Traders must know why the indicators and tools are on the chart

• Traders must know how to use them;

• Traders must know when to use them.

If too many indicators and tools cluster the chart then those 3 important questions can never be answered. Traders become lost in the messy charts and have no clue what do and how to trade. This is a clear disaster trading plan.

LACK OF CONFIDENCE

Most of the time traders add on too many indicators and tools because of their trading psychology that lacks the confidence in taking setups. But do not replace lack of experience with over analysis. Remember that there is no short-cut for experience. We must continuously practice on our mind set, skills and trading plan and remember that a Forex trader is always better off when using a balance of tools and indicators.

RECOMMENDATIONS

I recommend trading based on price action and using maximum a couple of tools and indicators to give confluence and extra view on the chart: perhaps 1 indicator for trend, 1 indicator for support and resistance, 1 for entries and/or exits. Nothing more is needed.

I recommend keeping the trading plan and the flow of making decisions simple. Also it is a good idea to formulate the plan on paper and have it next to your PC when trading.

I recommend keeping the trading plan somewhat flexible for particular case by case situations. Only if you have less trading experience, in that case trading a non-discretionary system or finding a mentor makes sense.

All in all, analysis should lead to better and more profitable decisions, not to confusing and losing trades. If the process of analysis becomes too heavy and difficult, and the trade results are also not giving much reason to cheer, then it is time to find a new mixture in your trading plan. It could be true that your analysis, which is something that should help you, has in fact become your trading enemy and it is worsening your trades. Do not let that happen! Keep your analysis useful and sharp!

Many Green Pips,

Tarantula FX

Twitter: @elitecurrensea