Why Lagging Indicators Cause Trader Uncertainty?

By Jim Buhs

One of the hardest things a newbie trader has to overcome is uncertainty. Many traders just starting out get extremely anxious when they are trading live. (especially the first week) A big reason is that they obviously don't want to lose any money. They might be trading with more money than they can afford. But the biggest reason they feel this way is quite simply they don't know what they are looking at.

When most traders begin trading, they scour trading forums, looking to find trading systems that people are having success with. They look at the system and it usually relies on a few lagging indicators, such as parabolics, RSI, Moving average, or even a special indicator designed by somebody in the forum. The problem is most new traders don't realize that because these indicators are lagging, they are only telling them what has happened in the past.

Then when it comes time to trade for real, the trader slaps on these indicators onto his/her chart and uses these indicators as the sole reason to buy or sell. When it works the trader is happy and thinks they have stumbled onto a potential gold mine. But the inevitable always happens. They get their first loss. What makes it worse is how completely helpless they felt while they were in that trade.

There is a simple reason why they felt helpless and it has nothing to do with the fact that they lost money. The reason is they never bothered to understand price action and what makes the market move. A trade that goes against you is not that big of a deal as long as you can understand why the price went against you. Its an incredibly lonely feeling, watching the price of a stock, option, or currency go in the exact opposite direction you predicted. The only thing that makes it worse is that you don't have any idea why you were wrong.

Indicators are just a shortcut. If you really want to be able to predict price movements, then you should cut out the middle man and start looking at the price itself.

I used to be one of those traders that covered my charts with lagging indicators. Then I realized that price action gave me all the information I needed. To check out more forex reviews, make sure to visit LearnForexDirectory.com