Before we explore the pros and cons of using various technical indicators, let's acknowledge one thing:

ALL TRADERS SHOULD TARGET CONSISTENT RETURNS!

There is absolutely no point in trading if your objective is to have one big win followed by thirty small losses that completely erode your win.

There is a sea of different indicators in use by traders around the world. New indicators are constantly being developed, while old indicators are regularly put out to pasture. The main failure of nearly all technical indicators is the fact they are rear facing. They tend to show you where the market has been, leaving you to extrapolate the next most likely move in the market, position yourself, execute and manage the trade. This may sound simple, but in actuality, it is very difficult. Even when using the sophisticated table you see in the Euro chart above, it can take some practice to establish a firm entry strategy.

On a broad scale, when looking at technical indicators, you have to acknowledge two key factors:

1. The number of traders using various indicators (approximately 95 %).
2. The number of traders who lose their trading equity within their first year of trading (approximately 95 %).

When these figures are analyzed, it quickly becomes apparent that another approach needs to be applied in addition to technical analysis. What serious traders need to do is figure out the elusive qualities consistently successful traders have; and how to develop those qualities in themselves.

Doing Things a Little Differently
Consistently profitable traders have developed a way of perceiving the market and a thought process that eludes most average traders. They focus on what makes them money, trade execution and risk management, leaving analysis to other experts. This elite group of traders quite often uses very few, if any technical indicators. What they do is focus on result oriented activities (risk management and execution), exploiting the weak psychological makeup, characterized by extremes of fear and greed of average traders, and trading their well refined system.

One of the first steps in refining their trading system is to create a well defined set of entry rules and risk management criteria. There are generally only two types of entry strategies.

Hard Entry Strategy
Hard entry points don't normally stroll along and present themselves nicely packaged and ready to execute. Often, markets will stagger along towards an entry point and then flutter with it (a soft entry point) before making a solid commitment. Sometimes markets will trigger an entry, only to dance across the profit and loss line of a trade for a long time before moving up or down.

In order to avoid those frustrating entries, you need to calculate a level in the market you're watching, that is outside the jerky moves the market may make, but close enough to allow you to take advantage of committed moves. These are what CFTI calls "hard entry points". These points are excellent for high activity days, for example, non-farm payroll days in the indexes and currencies or crop report days in the grains. Hard entry points are highlighted in either red or green on the table in the chart above.

Whenever we enter a position using hard entry points, we typically use a trailing stop 15 - 20 points behind the entry point. Once the market has moved to the next level on the table, the stop should have moved enough to at least cover commissions, if not lock in a small profit. For example, we'll assume the Euro went into a tailspin and triggered the short entry point, highlighted in red on the table, at the 1.2117 level. The initial stop loss would be somewhere between 1.2132 - 1.2137. If the market kept going south, and we breeched the 1.2096 level, we would then move the stop to the 1.2115 - 1.2110 level and keep trailing it from that level.