There are various indicators used by Forex traders such as MACD, Pivot Points, Moving Averages, Bollinger Bands, Japanese Candlesticks, etc. to help them figure out where and when to enter and exit trades. You can use technical indicators and make a profit, but many traders misunderstand or overemphasize them and suffer losses because of it. Most Forex traders believe that they could easily download a Forex indicator and then mechanically apply it to their trading system and make a lot of money, which is just wishful thinking. Successful traders are aware that there is a lot more work involved in using indicators than simply generating buy/sell signals or exactly pinpointing trade entry points. Forex technical indicators are only part of your trading strategy and cannot solve all your problems. You should not blindly put all your hope in some indicators without knowing how each of them works.
For example, moving average indicators are used to show the direction of the trend. Frequently used indicators are 50-day MA, 100-day MA, 35-day MA, 200-day MA, etc. and are only valid with daily charts. Some day traders believe that a good trading signal is when the 50 day MA crosses the 13 day MA when it happens; you should start trading in the direction of this cross. The problem with this is that these types of crossovers don’t happen often, which can be taken advantage of by traders and usually lead to a situation where traders find out that the crossover they traded was actually reversed. It could be the worst situation when day traders anticipate such crosses and actually walk away from the market they are trying to trade. It would not only guess that the price would be next, but it would also guess the position of the indicator based on the prices.
Apart from that, there are several other problems with technical indicators, such as problems with prices and quotes offered by brokers. Various Forex brokers will provide various prices and quotes at a given time which can confuse you a lot. Arbitrary Forex technical indicators have the same effect and traders will give various responses to each of them.
Also, many of the technical indicators are usually developed by traders involved in the stock market. With the advancement of technology and computers, they are implementing these indicators in the Forex market. But you should know that these indicators have not been tested with real-time data and cannot be trusted. Regardless of which indicator you use, you should be aware of how it works and make sure that it has been proven effective with real money using a live trading account.
Successful Forex traders are aware of the limitations of Forex indicators and understand that technical analysis is only one part of the trading strategy. In addition to technical analysis, your fundamental analysis and market knowledge are very important to your success.