January 6, 2008
Can You Trade Forex Markets Without Using Technical Indicators?
If you talk to any forex trader, you will find that the vast majority of them use technical indicators to make their trading decisions. So does that mean that you have to have a basic knowledge of technical analysis in order to profit from forex trading? Well not necessarily.
Technical analysis is of course very useful and many traders couldn't trade successfully without consulting their favoured indicators, but you can be a profitable trader without using technical indicators at all.
Instead you can simply base your trading analysis on fundamental analysis, ie taking a longer-term view of where a particular currency is headed using the current economic situation and future economic forecasts.
Just take a look at George Soros who in 1992 took a short position on the pound and as a result pocketed over $1bn when the Bank of England withdrew the pound from the European Exchange Rate Mechanism. I think it's fairly safe to say that this position was more likely to have been based on economic and political conditions rather than an overbought RSI or stochastics.
Another method of trading without using any indicators is to trade the economic news releases that occur on a daily basis. This is a much more short-term method and is quite difficult to do, but it's definitely doable. It's not something that I personally am particularly good at, but I do know a couple of forex traders who make regular profits trading the news. After all you can get some volatile swings immediately after major announcements, which presents some good trading opportunities.
Finally, if you don't fancy forex trading based on fundamental analysis, whether long-term or short-term, then you still have one other option – trading the currencies based only on price.
I know a trader who tells me that the best indicator, and the only one you really need is price, after all the price will tell you what has happened to a currency's price in the past, and viewed correctly it can be used to predict where it is likely to go in the future as well.
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