If you have ever come across the term ‘naked forex trading’ in the past, you may have been (understandably) intrigued. Needless to say it is not a literal term, but is used to describe a certain style and technique of forex trading. Most forex traders rely on technical analysis books written for stock, futures, and option traders. However, long before computers and calculators, traders were trading naked. Naked trading is the simplest (and oldest) trading method. It's simply trading without technical indicators.
Traders who use standard technical indicators focus on the indicators. Traders using naked trading techniques focus on the price chart. Naked trading is a simple and superior way to trade and is suited to those traders looking to quickly achieve expertise with a trading method. Whilst this form of trading is cannot be considered non-technical, it uses theories based on ‘price action’ in order to speculate on future currency price movements.
Rather than using a technical indicator window, such as the Relative Strength Index, MACD or custom indicator codes, price action traders look within the price charts themselves to spot potentially profitable trading opportunities. Using a number of basic but skilled observations, price action traders try to map the price chart in order to determine where to place their forex orders.
Modern day forex traders tend to use numerous different indicators to attempt to figure out whether the price of a currency pair will move up or down. As such, the charts that they normally look at are cluttered with tons of additional information such as moving averages, stochastic analysis, MACD indicators, and so on. In contrast to that a ‘naked’ chart would be simply a very basic price chart of the currency pair without any of the additional accouterments that normally go along with it.
Despite the fact that it may seem like a slightly less reliable way of trading on the surface, the truth is that many people advocate naked forex trading. Some even believe that removing the reliance on indicators that complicate the analysis of forex trading to be a good thing that can help you to make better trades. While it is still hotly debated whether or not that is true, at the end of the day it certainly doesn’t hurt to use naked trading techniques in conjunction with conventional indicators either.