Now some of this will be really basic and will probably remind you of when you were in your maths class a long time ago. However, it is important that you understand the different types of chart as this is what most people trade from.
An indicator is a programme that reads charts and uses historical info to 'indicate' what might happen. They give signals for when to enter and exit the market. They can also tell you when NOT to trade.
Sounds like the Holy Grail right?
In an ideal world we'd find an indicator we liked and trade by its signals. Problem is it's not an ideal world and all indicators have their limitations. So, traders often use more than one (more the merrier right?) searching for the perfect combination to give them the edge. You need to be careful though as different indicators can give conflicting results. This is an even bigger problem if you don't really understand what the indicators are telling you about the market.
Indicators, being computer programmes, don't apply judgement or discretion which are crucial to successful trading. Just remember the BEST tool you have for mastering forex trading is between your ears! Unfortunately many newbies (and some experienced traders) don't take time to learn what indicators really show, blindly following signals without understanding what they really mean in the market.
So why do traders use indicators?
Used correctly, indicators can be used as a secondary form of analysis to back up what you're reading from the charts. As you try different indicator software you'll learn which one or combination, work with your trading style and help confirm your decisions.
If you're going to use an indicator then find out what it does, how it reflects and predicts price in the market. Then at least you can apply your own judgement to its signals. If it seems like a daunting task learning about the thousands of indicators out there, remember most traders choose from a small group of about 20 of the most common such as; moving average, Stochastic, MACD etc.
