Photo Credit: MQL5
So first things first, what exactly is Naked Forex?
Naked Forex is a style of trading that uses absolutely no indicators. In the Forex market, an indicator is a particular measure of volume and price for a certain movement and how it will affect an account or trade. These measures then help inform the trader if they should and when they should enter or exit a particular movement.
Naked Forex may also be referred to as price action trading. Depending on who you talk to, some traders will recommend looking at no more than two indicators when using this strategy, but some use absolutely none to be truly “naked”.
Why Don’t Naked Forex Traders Look at Indicators?
An indicator is more of a signal, but not necessarily a sure note to buy or sell. These points help traders decide if they are going to make a particular move.
Due to that point, naked traders opt to simply not look at any indicator because they are not a sure signal.
How Does Naked Forex Trading Work?
Naked Forex trading is definitely not for beginner traders. This trading method requires in-depth knowledge of the market and how it works as indicators are not used.
Rather than looking at indicators, a Naked Forex trader will look at the various candlestick patterns and charts day by day. Many other Forex trading techniques look at past, current, and potential future values a currency will have. With Naked Forex, it looks ONLY at current values.
Naked Forex trading uses more technical analysis in each movement. This is because it only looks at the information directly presented and in front of the user at that moment. Beyond immediate information, Naked Forex traders also look at forex economic calendars to better anticipate big events and see how big events impact them.
Naked Forex traders understand the market with a greater depth than the average or beginner trader. There is a key in knowing how the market works and that it operates in cycles. Knowing these cycles can also help determine what to do from a historical standpoint.
These cycles appear in large charts and small charts as well. The key to watching these cycles is that an effective Naked Forex trader will know how to move with the cycles rather than against them.
What is the Benefit of Naked Forex Trading?
Naked Forex trading does have its unique benefits. In fact, some experienced traders would recommend this as the first method of trading to initially learn the world of Forex to be able to have a better understanding of the market before trading in other styles.
This may be a recommended first tactic to learn because it can help engrain the idea to check for price action first and look at indicators second. Placing indicators as a secondary resource ensures that they stay in place as more of a confirmation to a movement than a clear statement of what type of movement to make.
One initial benefit of this trading style is that each trade you opt to make is highly simplified. This means that because you are not looking at indicators and other information, you go solely by the situation and are not overwhelmed with other information.
What About the Downside?
The biggest downside to Naked Forex trading is that you need a great deal of industry understanding to execute this technique. Everything done with Naked Forex is in real-time, so it takes time to know exactly how a market may move and what part of the cycle it is in.
Psychology With Naked Trading
Naked trading is approached with a few other aspects as well. The biggest component is any of the following moves go against “mob mentality”. Just because you see large movements does not mean you should hurry and hop on the bandwagon.
Large Candlestick Movements
Naked Forex traders will look at candlesticks to help make their choices. With looking at this, a trader will want to be sure to be a part of the “smart money” group. This means they are some of the first to growing trends and don’t jump in when the candlestick has already grown and sharply rising. Often something that follows fast growth is selling, so to sell and make the most gains, you want to join growing movements early on.