It is very important that you understand the different types of graphics in forex trading as it is with them that most professionals work.
An indicator is a program (or algorithm) that reads the history of graphics and uses this information to indicate the probability of what might happen. It sends signals to determine the input and output of market time. It can also tell you when you shouldn’t take any action.
Unfortunately if the indicators were the only answer, there would no longer be a market but only success stories.
In an ideal world, we would choose an indicator with which we feel comfortable and we would simply act according to the signals it provided us with. But we do not live in an ideal world and all indicators have their limitations (some traders do not even use any technical indicators). Chartists (traders who deal with the help of graphics) use more than one indicator in most cases and are looking for the perfect combination to try to predict trends. However, as different indicators can give contradictory results, one must be extremely cautious. The problem is much bigger when you do not really understand the messages send by the various indicators.
As previously mentioned, indicators are computer programs and therefore do not take into account decision making, which is a key of course, for successful transactions in the foreign exchange market. Remember that the best tool at your disposal is between your ears. Unfortunately, many beginners (and even some experienced traders) do not take the time to learn the proper function of each indicator, and blindly follow different signals without really understanding the meaning.
Why Use Indicators?
If used correctly, indicators can complete the analysis and supplement to the reading of the charts. While trying different indicators, or a combination, you get to know what is best for your style of trading and help you make your decisions.
Finally, if your choice is to trade with only one indicator, you will know, in a short time, whether it brings results and how it reflects and predicts the market prices. After that, you can develop your own judgment to interpret the signals given. If it seems too difficult to analyze the countless existing indicators, you can choose from, like most traders, restrict yourself to a number of twenty of the most common ones and pick the most popular such as: moving average, stochastics, MACD, etc.
Note that more indicators we include the more information and the more the confusion. A good way to start is to use the points of support and resistance and Bollinger bands.