FOREX Trading without Indicators
When it comes to trading most professional traders will be trading with indicators, so when most people hear that someone is trading with out them there is an instant look of bewilderment. To them it sounds like driving in the dark with no lights. But in fact it is the opposite.
So to people that trade without indicators they have to same reaction to people that trade with 10 indicators on their charts in order to place a trade. They will view all of these indicators as causing a blind spot to what is actually going on in the market.
FOREX Traders have been trading without indicators for as longs as the market have been around. This is what is simply known as price action. This particular trader is looking at the chart, looking at the current prices movements, comparing it to past price action movements to predict future price movements. So in simple terms everything we need know is sitting there right before our eyes, without the block of needless indicators.
Here is an example, within the FOREX Market there are certain patters that will be repeated on a constant basis. They are predictive in nature, as opposed to indicators like and RSI or MACD which are always lagging. They are only telling us what has already happened. Anybody can be a millionaire if they only tell you what has happened already. The real skill is using past information to make an informed decision about what the future holds. Trading without indicators is as close as we’ll ever get to being a FOREX Trading psychic.
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Confluence is a term that is often used in geographical circles, but it is also used when discussing aspects of forex trading as well. In simple terms confluence refers to two things meeting or coming together, and this is commonly used to describe scenarios where two or more technical indicators come together.
So why is this important?
Well you will rarely see it being mentioned in any forex course, but it is important because you often get some very good trading set-ups when a few of these indicators come together. To digress for a second, some traders use this term to describe situations where two indicators give the same signals, for example when both the RSI and Stochastics are above the 80 level and therefore overbought. However I like to use the word confluence in the truest sense of the word to describe situations where two similar indicators come together on the charts.
One example of this would be where you get a situation where there is a key fibonacci level very close to the daily pivot point. One of these indicators alone can often act as a strong support or resistance level, so two together will give you an even stronger level of support or resistance.
Another good example, and one I look for quite a lot in my own trading, is when several moving average indicators come together on the charts. For instance when the 5, 20, 50 and 200 period exponential moving averages come together and are all very close to each other.
When this happens it signals a period of consolidation, but more importantly it signals that there could a big breakout coming in the near future. As soon as the price breaks out of this range and the short-term moving averages start heading higher or lower, you should consider opening a new position in the same direction because you often get some big price moves.
So to sum up, confluence in forex trading often refers to two or more technical indicators coming together. Successful forex trading is all about finding high probability set-ups, and one of the best signals you can get is when you get multiple moving averages coming together, because the end result is that you often get a big breakout when this period of consolidation is over. However there are lots of other ways you can use confluence to find decent set-ups. This is just one good example that I use myself.