Five Signs of a Useless Forex Indicator

Hello, fellow forex traders!

Modern trading platforms allow analyzing and forecasting the movements of currency pairs using indicators. The widely used Forex terminal Metatrader 4 contains about 50 such tools. This number can be increased to theoretical infinity thanks to the built-in programming language MQL4.

But a large number of indicators does not at all mean their quality. In today's material, we will try to understand which indicators definitely should not be considered assistants in trading.

New "custom-written" indicators have been continuously appearing for two decades. Demand for programmers' services and the intensity of the search for advisors and scripts do not weaken for quite understandable reasons:

The development of technology simplifies the use of robots in trading, including for beginners, who harbor the illusion that on Forex it is possible to automate the receipt of profit.

Most likely, he will correspond with the programmer, trying to find out what the problem is, which will lead to an even greater loss of effort and time, and perhaps money as well. The article explains how to save your resources and quickly recognize the uselessness of the proposed indicator.

With the appearance of indicators, trading became easier in the sense that the crossings of lines and overbought levels or changes in the histogram give clear signals and rules for opening a position. This is a significant advantage over graphical analysis, which requires special attentiveness when detecting patterns and constructing geometric figures.

If an indicator has no clear and simple Buy/Sell signals, instead of generating which it simply follows the price, it is objectively useless.

Results from 0 to 1 imply that a high value gives 100% forecast accuracy. The problem is that the indicator does not indicate how exactly this day may end: with a downward trend, an upward one, or a flat.

If a trader does not understand how the signal is implemented on the chart, then he will not be able to test the tool, and indirect indicators are interesting only from an analytical point of view and do not affect profit in any way.

Below is an indicator that, according to the Noxa developers, uses a very complex formula for calculating entropy. It is able to determine how predictable the movement of the current candle is. 

Every author of an indicator strives to assure the buyer or potential consumer as much as possible (if the code is distributed for free) of the future profitable use of his own tool. 

During the first minutes of viewing or reading the presentation, a trader should see that before him is, at best, a grail, and at worst, a useful tool that solves the problem of a flat, a countertrend, or trading with the trend.

Pay attention to the screenshots of our topic "Arrow Indicators." Everywhere in the pictures, the predominance of profitable trades is shown. Every indicator has vulnerable zones that produce series of losses, but which of the developers would choose them for the presentation?

If the pictures of the tool that interested the trader reveal a predominance of stop-losses and losses, it is better to avoid such a topic.

The developer knows the positive aspects of the created script/indicator and tries to show them in the presentation of screenshots. There must be a lot of positivetransactions, and somewhere aside there should be a casual mention of possiblelosses.

High-frequency indicators came together with scalping strategies that require certain traders to have certain skills in manual trading, but they are not always suitable for Forex. 

In traders' slang, such tactics are called "pipsing". Some brokers directly stipulate its prohibition in the client agreement.

If a broker provides an opportunity for scalping, the trader will still need for a high-frequency signal indicator:

After fulfilling the above conditions, the question remains of the stability of the quotes feed and the speed of order execution. This factor will be a constant unpredictable element for forecasting the profitability of the strategy.

This type of trading is not possible onaccountswith fixedspread, the costs of which will eat up most ofprofits. Testing a strategy with multipletransactionsthe tester may not take into account losses from requotes, technical failures of the terminal, non-marketquotes.

The programmer offers an indicator where, in the input parameters, the trader gets only the ability to adjust colors. In the worst case, it is an API that broadcasts the signals of some miracle robot located on a server under the supervision of the seller of this grail.

Only an online robot can be worse than the variant described above. In this case, the trader is deprived even of the opportunity to check the operation of the algorithm on history. It is hardly worth hoping for the good faith of the seller or distributor of a paid subscription. Signals may be given by either a Martingale strategy or crossovers of two moving averages or any other simple strategies available in all terminals for free.

The programmer offers an indicator where in the input parameters the trader only has the opportunity to adjust the colors. In the worst case, it is an API that broadcasts signals from some miracle robot located on a server under the supervision of the seller of this grail.

If an indicator builds only support or resistance levels, then it is useless for algorithmic trading, and the effectiveness of these signals cannot be checked in the tester. Such a tool usually draws not one but several lines, implying an entire system of rules that facilitate the search for the market's bottom and top.

At the beginning of the topic, it was noted that the meaning of using indicators lies in the unambiguity of their signal. The display of levels relates more to graphical analysis, where besides resistances and supports, the shape of candles, patterns, and other elements of Price Action are important.

If a trader has candlestick analysis skills, then plotting levels is one of the elements of that knowledge, for which he will not look for a level indicator. 

If the indicator only plotssupport or resistance levels, then it is useless for algorithmic trading, and the effectiveness of these signals cannot be checked in the tester. Such a tool, as a rule, draws not one, but several lines, implying a wholesystem of rules, making it easier to find the bottom and top of the market.

The search for indicators is a necessary routine of trading; to optimize this process, research new strategies on thematic resources with a high reputation. This will help you encounter less often those five cases described above.

Each indicator, before being used in a trading system, must be tested on a demo account in Metatrader.

Respectfully, Ivan Petrov
Tlap.io

Searching for indicators is a necessary routine of trading; To optimize this process, conduct research on new strategies on thematicresourceswith a high reputation. This will help you encounter fewer of the five cases described above.

Before using in a trading system, each indicator must be tested fordemo accountin Metatrader.

Best regards, Ivan Petrov
Tlap.io