May 14 , 2019
Each beginner trader wants to find a Grail, a tool, strategy or a piece of advice that will help to make cash by just a single click. The “Kind Teachers” take an advantage of it; they have developed hundreds of trading strategies for newbies, trading systems, training courses and webinars, teaching successful trading. Alas, but all of these are mostly useless Forex tools that having nothing to do with real trading. From this review, you will learn why you shouldn’t complicate trading, which tools are not worth your time and what tips, said to be given by “advanced traders” are in fact useless, you will also see how traders fall into a self-delusion. The review presents my own personal point of view, so, join the discussion in the comment section.
Useless Forex tools and the tips by “professionals” which should be ignored
Indicators, Expert Advisors, trading systems, Forex trading tools that have been described in numerous sources on the Internet. The rules for arranging system trading, principles of Expert Advisors optimization, analysis of trading efficiency… Hundreds of complex indicators, which few even heard about, pattern, graphic analysis, trading on the news.
Is your brain already going because of the information flow? Well, let go off all the unnecessary things, all of this won’t help you at all. No, it is not because I doubt in your skills or abilities, it is much simpler – do not complicate your life. Advanced traders instantly see trading signals and build up the trading strategy, while beginners try to find a tool, indicator or a strategy that will “100%” work”, there are no such tools. Forex industry has been full of useless information for a long time; the information that has nothing to do with real trading and aims at a single goal, to attract as many beginners as possible to trading and to make money by their means.
- This article is purely subjective. I may exaggerate somewhere, going too far; but that is just an excellent reason to continue the discussion in the comments.
In this review, I’ll describe the futility of most Forex tools, write about “professional” advice and recommendations (that you often come across on the Internet), which never work, and I will also teach you to see the right signals and avoid self-delusion.
Part 1. Useless Forex tools
There are numerous people on the Internet who are willing to share their experience with the newbies. But all of them forget about one rule, “do not give recommendations, until you are asked to”. Those, who need recommendations, will be hardly able to use them. Those, who will be able to use the recommendations, do not need them.
1. Indicators. Is there any point in using indicators? Of course, there is. They were designed by smart people, but everything is good in moderation. Why shouldn’t you employ standard indicators of MT4? Are they out of date and not working? People like to complicate everything. They think that a single tool is not enough, and they try to utilize as many as possible. Many for some reason believe that they need to overload the chart with indicators, employ some cool, most modern Forex tools, and, most importantly, do it all at once. Then, all of this will certainly work. That is an illusion.
An advanced trader trades with a bare chart. They don’t even need to attach any tools, they can project in the thoughts how an MA or a stochastic will move due to their experience, practiced to an automatic habit. And those, who can’t make profit with the simplest tools, won’t do it with more complex ones.
Conclusion. Do not listen to any recommendations, study the basics of trading and the market structure yourselves. You don’t believe in a usual MT4 indicator? This is because you don’t understand how it works and what its algorithm is based on. Have no illusions that you’ll get a magic trading Grail by adding more complex tools to you chart.
2. Trading system. It is a set of rules, the application of which will yield you profit. If there is no profit, the system is not complete. It is easy. The key elements of a trading system are the timeframe and the asset, the time of you trading, entry and exit rule, risk-management (the distance to stop orders)
The longer you are trying to make up a trading system, the more you are likely to fail. Wit sometimes works woe – any attempts to complicate any Forex tool fail in most cases. Don’t waste time on making up a trading system, you’d better understand how the indicators work.
What information does an indicator provide you? “An entry signal is when two lines cross “, that is how answer those who blindly follow some conventional ideas. You should understand how the price is moving, and an indicator is mathematical representation of its movement. If you have not figured out what is going on in the chart when making the trading system, you will get a loss.
Conclusion. It is extremely important to follows rules in Forex. When you break the rules, it is rather hard to find out where you have mistaken. And there is no point in complicating and enriching you trading system. You should make up an algorithm, you must submit to discipline, and only then, you have chances for success.
3. Pending orders. “Are pending orders really bad?”, it is a reasonable question of traders, since many strategies are based on exactly pending orders. For example, forex trading on the news, where you put orders in both directions, and the pending order that hasn’t worked out is canceled later. When you use this scheme, you provide the broker with ample information this way.
A question. How confident are you that you operate in the real market, and not inside the broker’s “kitchen” system? Nobody can know for sure. At least, most traders will fail to provide good arguments. When you put a pending order, you in advance show you targets to the broker. If the broker wants to harm you, why shouldn’t it take an advantage of this information? If you inform the dealing center about your plans, you acquire additional risk. Is there really any point?
Conclusion. Do not take unnecessary risk. If are not 100% sure in your broker (and nobody can be 100% sure) – use real orders. If you put stop losses, do not follow the conventional recommendations “a little higher than the previous high”, “a bit lower than the low”, or at some exactly suggested levels. Market makers usually know the places where there is the majority of stop orders and enter their trades there.
4. Expert Advisors (EAs). An EA is the transformation of an effective trading system into automated trading. Every trader has a dream to click on a button and watch the deposit growing. Unfortunately, this can’t be so in real life. There was once an experiment performed. Manual trading was compared to algo trading in the same conditions. The trader, who was using robots in Forex trading, was asked how often he made corrections to the software. He answered that he did it every day. So, in what way does it differ from manual trading then? The theory implies that an EA should be optimized after a long time. The experience proves that if you don’t want to lose your deposit, you should constantly monitor the Expert Advisor and correct it.
Conclusion. The time, spent on the search, testing, optimization of an EX (and especially the money) is the wasted time. Would you like to believe in fairy tales? Then, I can only wish you good luck.
5. Forums and chats. It seems to be both useful and useless tool to trade forex. Why do traders visit the forums at all? To justify their lack of confidence, to look clever for others, just to satisfy curiosity. During the trading, forums may confuse or scare a trader off. That is because they are often used for manipulations. But they also have their advantages. Exchange of experience, stress relief - but all this only during free time, when you do not trade.
Conclusion. Multitasking results in the loss of focus and errors. You should either make money, or study. If you realize that you need and help for market analysis, take a break. Exit the trade and spend a few days on the trader forums, chats and so on. Don’t waste your time on forums if there is no need.
Part 2. Useless Forex advice
The Internet is full of novice traders. I have a feeling that everybody is willing to share their knowledge and skills, offering dozens of recommendations. However, Forex advice boils down to psychology (don’t risk, diversify the risks, don’t give up and so on) and general instructions on trading strategies.
They are of course worth your attention, but you should keep in mind a couple of moments.
- All traders are different and their approaches are also all different. There is no single instruction for trading behavior. It is reasonable that, for example, you shouldn't trade on borrowed funds. But many for some reason widely use financial leverage.
- Most articles, offering forex recommendations, are written based on key quires in order to increase the website traffic, driving the site to the top lines of search engines. The posts are written by copywriters who have never traded, they are rather copying each others’ texts.
That is why I’d like to focus on the useless Forex tips. Those that you can often come across on the Internet, presented as recommendations. It is remarkable that are thought to be helpful, though, as experience proves, things are often the other way around. Well, read on:
1. «Do not turn winning trades into losing ones. When you reach the profit, move the stop loss to the breakeven level and then move the stop following the trend.” At first, everything seems to be right. The trade should be protected. But, at some point, this strategy gets to the point of absurdity. A trader starts using stop losses to protect even a small profit of 5-10 pips, after that, the trade is exited with the stop loss, due to volatility, though the major trend continues. The right solution here is to identify the least profit, after reaching of which, the trader will need to set a stop loss at the breakeven level. Its distance will depend on the volatility, the time of trading and other factors.
Trailing stop can serve as a complementary tool. It is a kind of the stop loss that is following the price in the main trend direction, but it doesn’t roll back when the price reverses. In classical trading strategies, when the target profit is reached (take profit), 50% of position is closed, and the other 50% is fixed by the training stop at breakeven (that is, the size of the trailing stop is the distance from the entry to the take profit). However, you must keep in mind that a trailing stop is set in the trading terminal (platform), rather than on the broker’s server. If the connection to the server is disrupted (the Internet connection), it will be canceled.
2. “Always trade with the trend”. In general, the strategies may be divided into two parts: trading in the trend and against it. Almost all recommendations for beginners are amounted to the rule “Trend is your friend”, that is, it is a mistake to trade in the opposite direction. And now, there two ideas:
- Trading with the trend. If the price is steadily rising, it wouldn’t be wise to enter trades in the opposite direction. The experience proves that the higher the price is going (for example, it is about a rising trend), the more people want to earn “quick money” on the price rise (that is, they put entries in the trend direction).
- Trading against the trend. This is entering the trades at the time of the trend reversal in order to pick up the beginning of the reverse movement. It is remarkable that, when the price is going up, a trader thinks like that, ““But the price cannot go up forever, it means it should reverse at some point”. And the longer the price is going up, the more traders start thinking this way.
These paragraphs convey the opposite ideas that nonetheless exist in practiced trading. The matter is what power (bulls or bears) will dominate in a particular situation. Any bubble burst sooner or later, and a try to enter a trade in the trend may turn out to be too late. On the other hand, an entry against the trend could also be too early. Or, on the contrary, it could be at the right time, despite the recommendations of the “professionals”
Conclusion: the advice is more than just useless, because there are different situations in the market. If trading with the trend implies “getting on the last car of the leaving train”, then it will yield you losses. An advanced trader with large capital will enter a trade at the very beginning of a trend, and, at its peak, he/she will on the contrary “cut the sheep”. If a trader really sees a strong trend, he/she can trade with the trend either. It is similar with trading contrary the trend. If you realize that the trend will reverse soon, then why not enter a trade in the opposite direction to the ongoing trend? Always act, based on the situation.
3. “Analyze not less than two information sources. For example, price chart patterns and news”. This forex advice will do only harm to a newbie. Common chart patterns work out only in one case out of 10. And the fundamental analysis can at all be dangerous.
4. «Take profit should be at least twice further than stop loss”. All market situations are different, and it at least strange to determine the stop loss size by the take profit.
5. “Stop trading if you feel emotional excitement (euphoria, depression and so on).” The advice sounds reasonable, as during these moments you make an error. But if a trader is a professional, he/she will be on the contrary encouraged by the emotions. And if people make mistakes at the moment of irritation, or they are not confident in themselves, they shouldn't trade at all. That is why, this common recommendation is a bit controversial.
6. “Do not be afraid of the foreign exchange market, risks or losses”. Here, the phrase “Do not think about a white monkey” will suit. The more a trader reads the recommendations that one shouldn’t be afraid of or worry about something, the less he/she wants to engage in trading at all. There is only one solution – less read different advice about forex and get your own experience in practice. You’ll understand the trading principles with time.
Most of all bad Forex trading recommendations are given by free training courses in dealing centers, which are just not interested in that their students (potential clients) will be successful.
Part 3. Useless search for signals (about graphic self-delusion of traders)
On the Internet, there are hundreds of different strategies described, which mostly base on the idea to attach indicators to the chart (some apply more tools, others – less) and to look for simultaneous meeting a few conditions that are called a signal. How is someone trading according to technical analysis? They attach indicators to the chart, look for a confirmation, find good coincidence of all factors and enters a trade, don’t they? But what happens to your subconscious mind when you are constantly looking for coincidences? The more frequently you check the chart, the more you mind is trying to look for them engaged in wishful thinking. And sometimes, the search for signal turns out to a kind of mania, when you mind already finds in the chart even the things that are basically impossible.
There was an interesting experiment in one town. Because of a high level of crime, teams of volunteers were formed who would have to report crimes to the police. First, the result exceeded all expectations. But when the crime rate decreased, volunteers began to report various kinds of trifles. For example, someone crossed the road in the wrong place, threw a cigarette butt by trash can, etc. As a result, the police were overwhelmed by stupid violations, distracting them from more important tasks, and the volunteers themselves were carried away by various kinds of trifles instead of their main job.
Another interesting experiment was held in a group of people. They were asked to find among the presented pictures of human faces those in which they saw a threat. At first, the experiment participants pointed to the pictures where the threat was really clear. But then the researchers began to remove those pictures, of course, without warning the experiment participants. And the people began to see a threat in those pictures that expressed ordinary emotions. Why? Because they were told to find it, and the brain began to look for a threat in the pictures even where it was not really there.
A similar problem occurs when you enter a trade in Forex. First, you instantly see an accurate signal and the trade is winning. Next, your mind starts looking closer at the chart, more and more attentively each time. So, you see a signal here and there. You attach an indicator and it confirms the signal. You attach the second one, and it is again confirmed. You compare them to the third indicator and see a completely opposite situation. The trader falls into the trap of the desire to see the signal and finds a confirmation where there is none.
Important! Studies show that the human brain works according to the following algorithm: the less it comes across a familiar combination of signals, the more often the brain notices it. And vice versa. The more often it sees a familiar event, the more it gets used to, and so your brain begins to make up something that doesn’t exist, paying attention to unimportant things and ignoring the real signals.
If you open the chart after a slight correction of the timeframe or history and right away see a signal, you can enter a Forex trade. When a person has a search for signals brought to automatism, she/he sees a combination of indicators almost instantly in any chart. If you need to spend time on search and confirmation, you are more likely to make an error.
To avoid trading errors, you should:
- You should make the search for signals habitual, virtually automatic
- Set clear target ant not try to guess anything. If you have any doubts, skip the signal.
- Strictly follow your trading plan
Traders recommend monitoring the chart with a frequency, corresponding to the timeframe. If you operate in the hourly timeframe, look at the chart not more than twice an hour. Accurate signals to enter a forex trade are clear in the first seconds. The more you are trying to find them, the more you are likely to lose.
Each trader must think independently. You may read dozens of books and recommendations, but you will still be losing. Or, you may find your own trading style, practice your experience and become a professional. The secret to success is easy; you should listen to yourself, try to understand what you use and what is happening, follow a clear plan and never complicate anything. I think this article contains many arguable points that I suggest we discuss in the comments.
I wish you to enjoy your trading and be successful!
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Taken form liteforex.com