With automation souring in 2021, many traders question the relevance of listing down, calculating, and analyzing technical forex indicators. Should you drop the idea of understanding technical indicators, hire collaborative robots and ease forex trading in 2021?
The short answer is, technical indicators are not useless in 2021. Should you, then, cram complex mathematical equations to trade successfully in 2021? That is the motivation behind this article: to see whether you should understand all technical indicators despite the rise in automation.
To enable you to grasp every concept and make the ultimate decision, you should understand the logic behind forex trading’s technical indicators. Next, you should find out why automation is (or not) necessary in forex trading in 2021. Let’s dive right in.
What Is the Logic Behind Technical Indicators?
Research shows that more than 90% of forex beginners lose from forex trading because they fail to understand the why of technical analysis. And if they know it, they ignore to analyze price trends because they rely on market opinions. Why?
Other traders’ opinions invoke their emotions. Worse yet, they have too many concepts to learn before applying them.
The more shocking part is that even those who have traded for years and possess forex basics may not gain from the trading because they fail to understand the analysis logic.
Fundamental analysis digs into currency price and volume changes due to economic, political, and social changes. It would help if you listened to market opinions because actions of huge marketing impact quantity and quality of currency changes.
Lastly, technical analysis is one of the three core analyses you should undertake in forex trading besides fundamental and sentiment analyses.
Technical analysis is a data-driven method that lets you see the connection between past price alterations and future values. Tools used in technical analysis are called technical indicators. The most familiar of the tools are:
- Stochastic oscillator.
- Moving average convergence divergence (MACD).
- Bollinger bands.
- Relative strength index (RSI)
- Fibonacci retracement.
- Ichimoku Kinko Hyo.
- Average directional index (ADX).
Why You Need Technical Indicators
MACD, RSI, ADX, and Bollinger Bands tell you the direction of price change due to past characteristics. They are called trend indicators. The data obtained from their calculations help in drawing graphs for more straightforward forex analysis.
Some technical indicators echo the number of sales and purchases over a period. They are called volume indicators. Some of them are Klinger oscillators, OBV, and Chaikin Money Flow.
Momentum indicators such as RSI, MACD, and ADX show the price change rate, echoing overbuying and overselling. Lastly, volatility indicators show price volume drifting in a direction.
The main advantage of technical indicators is that they help you make scientific decisions in forex trading.
However, the tools are hectic to calculate, and some need others to be effective since you cannot fully rely on one. So, is automation the solution? Let’s find out below.
Why Forex Trading Automation Is Necessary
The drawbacks of technical forex indicators make it necessary to automate forex trading. Trading on some of the best automated platforms, such as MetaTrader 4, exposes you to a wealth of benefits.
One of the advantages is that you can utilize the analytical power of collaborative robots. The software eases information gathering and usage within a timeframe to secure trades.
The more exciting part is that it presents you with a chunk of technical indicators such as Moving Averages, RSI, Stochastic, and OBV. This magnetizes a hot question:
Should You Understand Technical Indicators Despite the Surge in Forex Automation?
Yes, it would be best if you understood technical operation despite the rise in trading software. Reason?
Trading software is a programmable tool and not be emotionally sound to rescue a wrong setting. Knowing what happens under the hood of technical indicators will guide you in pioneering technical analysis decisions, stop-loss orders, and take-profit orders.
What Is the Way Forward?
If you can, automate part of forex trading, such as technical analysis. However, it would help knowing how the calculations work manually.
This is because being an informed forex trader is the best empowerment to make critical risk decisions. The sound decisions are what you need to be at the forefront of other forex traders.