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When you use trading indicators without understanding price

We show you what happens when forex traders blindly follow trading signals from indicators when price is in a deep trend mode. Example with EURUSD.

 

Which comes first? Price action or indicator signal?

Had a chat with a new student who dropped by the office yesterday. He asked me what I felt about indicators like RSI. I think they are great but only when is using them correctly.

I would like to share the following:

  1. Indicators are mostly derived from price and/or volume.
  2. I prefer to look at raw price then something produced by price.
  3. Many individuals operate trading indicators and following their signals without fully comprehending their construct and how they should be interpreted.
  4. As an negative example, a common myth or mis-use of an indicator like RSI is this: when RSI goes into ‘oversold’, it is going to reverse and therefore one should buy.

Some examples below.

 

EURUSD daily chart with RSI

EURUSD daily chart with month-month boxes

EURUSD daily chart with month-month boxes

If one followed trade signals from RSI based on the ‘oversold = buy’ myth, one would have committed the mistake of predicting bottom for EURUSD a few times while missing the chance  to make money by riding this EURUSD down trend fully.

 

EURUSD daily chart with Stochastic Oscillator

EURUSD daily chart with Stochastic Oscillator

EURUSD daily chart with Stochastic Oscillator

The same kind of mistake happens with Stochastic Oscillator – another trading indicator that is as popular as RSI.

 

Price always comes first with Tflow® Forex Strategy

EURUSD painted with month-month price action

Price always comes first with Tflow®’s forex strategy

A forex trader who learns to look at price action only, in this case applying one of Tflow®’s forex strategy of applying boxes to look at month-month trend, would know immediately that EURUSD is down. In fact we have never made the mistake of trying to buy EURUSD based on the belief that it is oversold.

This article ‘Why I believe EURUSD will go to 1.25 and even lower‘ documents how we start selling EURUSD as early as September last year and how we are still looking to sell EURUSD at this moment.

 

 

 

 

Learn a forex strategy and understand it fully

Tflow® forex strategy is a comprehensive strategy which we impart to forex traders with the full understanding of how price action operates in the market. We don’t use indicators. The course is a distillation of more than 30 years of combined experience by the founders. We are recruiting for Intake 47. Register with us for the course and arrange to attend one of our trading seminars for more information.

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For your reading interest, here is two more articles I would like to share with you:

  1. WTI down trend easy to spot with Tflow® price action
  2. 3 reasons why using trading indicators wrongly will lose money

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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