Which Is Better Technical Analysis (Indicators) Or Price Action?

Anyone who has tried their hand at forex trading understands just how tricky it can be to begin. For a beginner trader, finding the right strategy to guide your trades will be key to making consistent profits in forex trading.

Today, the forex market is not only the largest in the world but also the most liquid. The average trade volume in this market currently stands at around $6.6 trillion, which is close to double that of the New York Stock Exchange. 

Based on these statistics, learning how to trade forex can be a rewarding endeavour for anyone willing to take a risk. But while this is the case, the question of which is better between technical analysis and price action is one that will need answering before trading can start.

What Is Technical Analysis?

Technical analysis is used to evaluate statistical trends in daily trading activity. Its analysis typically focuses on price movements and volumes. Traders use technical analysis to identify viable trading and investment opportunities. 

What Is Price Action?

Price action is the movement of a security’s price, which is plotted over time. When trading on a proprietary trading firm, it forms the basis for all technical analyses of a commodity, stock, or other asset chart. 

Technical Analysis vs Price Action 

Quick summary:

• Both technical analysis and price action rely on past pricing information; the difference lies in how the trader processes the information.
• Neither of the two methods is intrinsically better for beginner traders; the key to using them successfully lies in using the selected tools correctly.
• Personal preferences, including how the forex trader uses their tools, are more significant than the debate on which is better between technical analysis and price action. 

Join us below as we investigate the popularly held beliefs on technical analysis and price action, allowing you to get started on learning how to currency trading. 

Price Action Is Better Than Technical Analysis (Indicators)

Traders using price action to analyse trades swear that this technique is better than technical analysis. However, both methods are quite similar. For starters, they both use pricing information obtained from bar charts and candlesticks to interpret price movements. 

Indicators (technical analysis) simply apply a formula to this same information. This means they don’t change what you get to see; they just use different methods to process the available information. 

Therefore, when a trader interprets price action, they’re practically doing the same thing psychologically. 

Price Action Is Simpler and Recommended for Beginner Traders

When trading in the funded trader program, it’s not often that one trading method is better than the next one; it all comes down to how you use the tools at your disposal. Seasoned traders often state that this is like trying to compare a screwdriver and a hammer. 

Both tools will work well for your intended objective, provided you use them correctly. On the same breadth, none of these tools will help you if you don’t know their purpose or even how to use them.

If you’re new to price action, you’re likely to feel lost without guidance or experience. It’s challenging to trade candlesticks, especially when you consider factors such as size, the often-overlooked momentum and volatility in bodies, and comparisons to previous price action.

 Therefore, you shouldn’t choose price action because it appears simple; if you’re unfamiliar with its many nuances, you’re likely to end up misinterpreting the charts. 

Price Action Is Leading as Indicators Continue Lagging

Any trader who claims that indicators are lagging is a trader who doesn’t understand their actual purpose. Indicators rely on historical insights (determined by your pre-set settings) and display a result after they have applied a formula. Consequently, indicators show outcomes from previous price actions. 

Likewise, a funded account forex trader analysing pure price patterns, such as Cup and Handle or Head and Shoulders, will also be looking at previous price action. This is the action that has already moved from its entry points. 

Both indicators and price action use historical insights that can be considered “lagging.” If you’ve to reduce this lag, you’ll need to analyse fewer past candlesticks or adjust the time settings for your indicators. 

However, you should note that the fewer details you include, the less meaningful your commodity analysis will become. 

Naked Trading Is the Way to Go, as Indicator Charts Are Messy 

Continuing from point number two, the notion that indicator charts are messy isn’t correct. The reality is that if you add too many moving averages or oscillators to any chart, it will become cluttered. But anyone who has used indicators understands that this isn’t how they work.

Typically, a trader will need to choose a single oscillator, e.g., Stochastic, to help them with momentum analysis. They will then choose a second indicator, such as Bollinger Bands, for chart studies. 

The purpose of including indicators in your strategy is to help you make objective trading decisions, leaving little to no room for subjectivity.

Conversely, a price action trader working with a blank chart could end up feeling lost due to a lack of clear reference points. Finding yourself in such a scenario can cause you to become emotional, leading to impulsive trade actions. Additionally, you could also overcrowd your charts with trend lines, resistance/support lines, and candlestick components. This is a recipe for disaster. 

When looked at closely, this argument has no merit. There are traders who prefer indicators for objective trading, while others prefer to use price action analysis. 

Price Action Is the Factual Way of Trading

Lastly, on the argument on which is better between technical analysis and price action, there are those who claim that “true traders” don’t need or use indicators. This is one argument that’s difficult to prove, as every trader trades based on their personal preferences.

Indicators can save you time when trading by allowing you to shift your attention to specific chart aspects such as momentum. Focusing on a single aspect will help you to process trading data much more quickly and with little subjectivity. 

Traders need to approach this topic with an open mind and avoid letting their biases guide their actions. A good trader should ensure they have chosen their tools wisely. They should also take the time to understand the advantages and drawbacks of different trading methods. 

It’s important to note that there’s no right or wrong between technical analysis and indicator trading; it all comes down to how you use your tools to make trading decisions.

Conclusion 

The debate on which is better, technical analysis or price action, has been ongoing for a while, and there are many misconceptions surrounding the two methods. As a trader, it will be vital that you approach this topic with an open mind and that you take the time to understand the pros and cons of each method. From here, make sure to choose your trading tools wisely. 

In the end, the effectiveness of each trading method depends on how you use your tools to make trading decisions. Put simply, trading performance will rest on you and how you use the tools at your disposal and not on the method itself. 

Audacity Capital is a world-renowned proprietary trading firm that has been in operation for 10+ years. It has backed traders in over 100 countries and has developed a reputation for helping fund traders who show potential. Click here to learn more about its funded forex program.