Three Traps in Trading forex

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1: You “play” with indicators without knowing what it really means

Here’s the truth:

Indicators are a derivative of price.

This means the values on your indicator are “created” by applying a mathematical formula from the price on your charts.

You’re probably wondering:

“What’s the problem?”

It’s this…

Indicators are “manipulated” to form bullish or bearish signals.

Let me ask you…

Have you noticed that your RSI indicator shows a bearish signal, but your MACD shows a bullish signal — at the same time?

So, which indicator do you trust?

Well, you’re stuck because now you have conflicting signals.

So, what’s my point?

Stop toying with indicators, it doesn’t give you an objective view of the markets.

Without an objective view of the markets, you can’t make the right trading decisions.

Without the right trading decisions, you’ll find yourself losing consistently in the markets.

Now, don’t get me wrong.

I’m not saying indicators are useless. But they shouldn’t be the basis of your analysis.

2: You rely on fundamentals to make your trading decisions

The market can go up on bearish news and it can go down on bullish news.

And often, by the time the news is out… it’s probably “too late” to enter.

Now you might be thinking:

“You should combine both fundamental and technical analysis.”

Okay.

But what if your technical is bullish and fundamental is bearish.

Now you’re stuck, AGAIN.

So, what now?

Well, here’s a secret for you…

Often, when the fundamentals are bullish, it would be reflected in the price.

This means the market is in an uptrend when the fundamentals are bullish (and in a downtrend when the fundamentals are bearish).

Here’ an example: EUR/USD is in a downtrend before the ECB cuts interest rate

So, what’s the takeaway?

If you can follow the price, then you can “throw” fundamentals away.

But wait.

It doesn’t mean you’ll never be wrong — far from it.

But when you’re wrong, you have your stops in place to cut your loss.

How about if you rely on fundamentals?

Well… by the time the “bad news” is out, the market had collapsed and you’d lost a huge chunk of capital.

So here’s the deal:

If fundamentals can’t accurately predict what the markets will do and it’s a horrible risk management tool, then what use is it?

3: You subscribe to a signal service

Now here are 3 reasons why I don’t believe in signal service and I never will…

  1. 99.9% of these systems don’t work at all

Here’s the deal…

The “amazing” results you see from these systems are curve fitted.

This means it finds the best parameters to fit the historical data so you get a nice looking equity curve.

Now, it looks good on hindsight.

But a disaster when applied to the real world of trading.

  1. The market is always changing

Now… perhaps you might be lucky enough to chance upon a signal service that works.

But here’s the thing:

The markets are always changing.

It moves from low volatility to high volatility, from range market to trending market, and etc.

So…

Your signal service might work for a while.

But when the market conditions change — its game over.

  1. You’re not in control of your own trading

Now when these systems fail, it’s easy to point the blame at others.

And it’s the last thing you want to do because…

If you blame others, it means you’re not taking 100% responsibility.

If you don’t take 100% responsibility, you are giving up your power to change.

If you give up the power to change, you’ll never improve for the better.

So the bottom line is this…

Trading indicators, fundamentals news, and signal service will not make you a consistently profitable trader.

Culled from Rayner Teo

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