Most forex traders rely on technical analysis books written for stock, futures, and option traders. However, long before computers and calculators, traders were trading naked. Naked trading is the simplest (and oldest) trading method and it is simply trading without technical indicators. Traders who use standard technical indicators focus on the indicators. Traders using naked trading techniques focus on the price chart. Naked trading is a simple and superior way to trade and is suited to those traders looking to quickly achieve expertise with a trading method.
The reason indicators are so popular is that they feed into the new trader’s belief that the indicator can help predict where price is going to go. To understand indicators properly, traders need to understand how indicators are built and project their information. 99% of all indicators are built using old price information to make a lagging indicator. For example; a moving average is built using old price to make a moving line that traders can use in a number of ways. The major problem with indicators is that they are always lagging and traders are using previous information to guide them.
The first thing a trader interested in price action trading needs to do is take off all the indicators and clean up his or her chart. Indicators tend to make forex charts look very messy and hide the most important part of the chart: the price! Many traders overload their charts with indicators, and it doesn’t take much for all the bars, lines, and moving averages to clutter your screen. Price action candles are thought to already have the news factored in. In other words, whatever the news does, it is already showing us on our charts. Of course, at times, new announcements will make price react more than usual, however, price in most cases will already be showing us the way even before the news release.
The trader will often think “if one indicator helped me make a winning trade, then two indicators are sure to help me predict where price is going even better,” and then when two doesn’t help, three has to be even better, but the problem is that like so many things in trading, it simply just doesn’t work this way. Humans in everyday life are programmed to think that anything worthwhile cannot be simple and new traders often spend a lot of their time trying to make trading complicated adding fancy indicators to their trading thinking that the more indicators they add, the more they will be able to predict where price will go, but this is the complete opposite of what traders need to do.
Price action is the cleanest and logical way to analyze and trade the forex market. The bottom line is that indicators make you lazy because they lull you to sleep in believing you don’t really need to do any work or learn anything besides how to read your “mechanical” indicators that will tell you what to do and when to do it. Price action is great because you can form decisions about future outcomes and direction with greater accuracy and speed than any other trading method because price action is the most current market analysis tool there is.
