Indicators can be a valuable tool or a complication to your trading, it all depends on how you use them. That's exactly what we will be going over in todays blog, using indicators the correct way.
It may sound like a no brainer but many traders use indicators for all the incorrect reasons. But first off what is an indicator? If you are new to trading, you might not have stumbled across indicators yet.
An indicator is a mathematical calculation based on a security's price or volume. The EMA you have seen on our charts is a great example of an indicator. Indicators can come in all shapes and sizes and can be used for many different purposes.
Now indicators are always a popular topic of conversation but many traders and companies have it all wrong when it comes to indicators. An indicator is there simply act a filter in our overall trading system. We use what the indicator is displaying combined with a handful of other factors to decide if we should get into a trade or stay out. We can also use indicators to signal us to close a trade, but that is a different topic for a different blog.
For example, if you have been following along with Gorilla Futures for awhile you would know we are HUGE fans of trading with the trend. This is where our EMA comes into play. We use it as a filter to help determine if we should get long or short. If our EMA is heading down we would normally only be looking for shorts. If our EMA was moving up we would only be interested in longs (most of the time).
Now just because out EMA is down doesn't mean we are automatically going to take a short trade, that would be crazy. That is where many traders get it wrong. They think the indicator should "indicate" exactly when and where to get long or short. Now we are generalizing the entire indicator community but the general assumption many traders have is, to get long or short only based off the indicator they are using.
This leads many traders down a path of disappointment since they think there indicator should make them money. Now it could help, but 99.99% of the time you will need more then just an indicator.
New and experienced traders should instead look at how to incorporate an indicator into there system to act as a filter. Go back to our EMA example, we use our EMA in conjunction with everything from our Price Action Course to find and enter into trades. By combining price action and a few basic indicators to act as filters for our overall system we have all of our bases covered.
In conclusion, indicators can be a great tool or can wreck havoc on your account. Use them in conjunction with a price action system to have the best chance of consistency.
How do you use indicators, comment below!