How To Use Indicators Properly

Well first of all I'm certainly not a pro at this subject, but I just want to talk about what I've observed from the various traders I come across in trading forums. As a price action trader, I'm inclined towards naked charts, however it doesn't mean I despise or belittle the use of indicators. Heck so many people have use them successfully. But this is what I've observed - most traders who are able to use indicators successfully are those that who have achieved a certain level of proficiency with price action. I'll provide some examples.

1. The beginner trader reads Alexander Elder books and learns about MACD Divergence. He sees one forming in the midst of a strong trend and immediately jumps into a counter trend trade, getting burned in the process. The experienced trader first identifies the significant support resistance levels. He notices that price has just formed a long tailed pin bar + false breakout of a resistance level. Moving to a higher time frame chart, he realizes that although he is making a countertrend trade on the lower time frame, he is actually shorting a retracement in the higher time frame downtrend. He then checks his MACD and observes that there is also a MACD bearish divergence. He takes the trade and makes a profit out of it. 


2. The beginner trader learns about Stochastics. He comes across the typical crap about trading %D %K lines crossovers or shorting when it is overbought and going long when it is oversold. I don't even need to state the outcome.... The experienced trader looks at his chart and notices that price has just pulled back to a support level in a strong uptrend and formed a pin bar there. He checks his Stochastics and sees that it is oversold. He goes long and makes a profit out of it.


3. The beginner trader learns about how moving averages and Fibonnoci levels can serve as support/resistance. He trades every rebound of his favorite 20EMA or 61.8 Fib retracement and gets burned. The experienced trader looks at his chart and notices that price has just pulled back to a support level in a strong uptrend and formed a pin bar there. He observes that the pin bar also pierces through the 20EMA and 61.8 Fib retracement, as such there is a confluence of 3 support levels there. He goes long and makes a profit.

Gosh I'm so proud of myself for being able to come up with those examples :P Haha actually it wasn't that hard because I was that beginner trader. I'm not saying that I'm now an experienced trader, but at least I think I know how NOT to use those indicators. So time and again as I read the posts and blogs of pros, I noticed that the way they use indicators is to use them as confirmation and additional weight to price action setups. Price action first, indicators second. This is really sinking into me deep, I'm so convicted by this that it is hard to convince me otherwise.