Price action vs indicators

Since indicators are lagging would a system relying purely on price action produce better results over the long term?

kagein said:

Since indicators are lagging would a system relying purely on price action produce better results over the long term?

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Really depends how you define "indicator"

eg If you had price candle charts with a price line indicator on it.....this would show up exhaustions....no lag at all.

Since everything you see in the market is already in the past, including the most recent price print, by definitiong you have a lag. As long as you realize, though, that what you are looking at is just a representation of the market and not actually the market itself, you can approach things the right way. Lags are not necessarily a bad thing, as long as they aren't so long as to be irrelevent to the current pattern of market action. It's the latter which is the important part. As technical traders we are seeking patterns in the data (with indicators or otherwise) which suggest future price patterns.

Continuing the theme of correcting the lag issue:

lag = latency comes from smoothing out price not from indicators. The CCI uses the last price in its derivation so it doesn't lag .... but it is also not smooth because the low pass filter is missing.

There are two issues with indicators that might be considered important:
- the smoothing that most apply, while making it easier to see the movement of the market, introduces lag and thus conventional users are often entering moves late.
- they take focus away from price and volume structure and the resulting support and resistance.

Would the "results over the long term" of a trading "newbie" using price/volume only be better than the "results over the long term" of a seasoned trading pro using indicators?

My point being that IMHO the results achieved using the tools one chooses to use will vary greatly depending on the skill and experience of the trader more so than the tools chosen.

Just my 2 cents anyways.

Cheers,
PKFFW

As far as I know, most season traders are able to successfully using indicators ( although it is lagging ) in their trading for a living.
IMO, experience plays a role, and they do not blindly and solely read indicators. They know the probability of the signals to be right or not. In short, they have edges.

Will a system simply following price action give a better result in the long run, I think it is very subjective, unless somebody can prove or otherwise deny it.

Just my 2 cents.

As PKFFW says "the results achieved using the tools one chooses to use will vary greatly depending on the skill and experience of the trader more so than the tools chosen".

My empirical evidence to date suggests that common indicators eg oscillators, price bands and even the humble Moving Average can be forward looking indicators of probable price action. It really depends on fully understanding how an indicator works and how a trader applies this knowledge to interpret indicator movement to price action.

fibonelli said:

As PKFFW says "the results achieved using the tools one chooses to use will vary greatly depending on the skill and experience of the trader more so than the tools chosen".

My empirical evidence to date suggests that common indicators eg oscillators, price bands and even the humble Moving Average can be forward looking indicators of probable price action. It really depends on fully understanding how an indicator works and how a trader applies this knowledge to interpret indicator movement to price action.

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Trading success comes from one of two things: superior knowledge OR a firm grasp of basic statistics. If you are going to rely on indicators or anything ike that, realise that your profitability will rely on the latter.

I hope you know what I am talking about.

fibonelli said:

My empirical evidence to date suggests that common indicators eg oscillators, price bands and even the humble Moving Average can be forward looking indicators of probable price action. It really depends on fully understanding how an indicator works and how a trader applies this knowledge to interpret indicator movement to price action.

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That's exactly the point I made earlier. Patterns in price or indicators are used to determine probable price patterns in the future. That's pretty much the entire basis of technical analysis, no matter which sub-discipline of it you choose.

kagein said:

Since indicators are lagging would a system relying purely on price action produce better results over the long term?

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Use of lagging indicators makes sense if you can tolerate large drawdowns.

Ron

ronblack said:

Use of lagging indicators makes sense if you can tolerate large drawdowns.

Ron

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Thats not true,

If you know how to properly manage risk and are familiar with the indicators you are using you can use lagging indicators to trade without accepting larger than normal draw down.

kagein said:

Since indicators are lagging would a system relying purely on price action produce better results over the long term?

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You will be more likely to come up with an answer that is useful to you if you first ask yourself what is the point of using indicators in the first place?

Db

dbphoenix said:

You will be more likely to come up with an answer that is useful to you if you first ask yourself what is the point of using indicators in the first place?

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Yes, yes. Come over to the Dark Side.

It was inevitable that this discussion get to that point, wasn't it? Not that I'm complaining, mind you. I gave up on using indicators many years back after I went through my phase of trying out everything I could get my hands on and finding them all lacking. Now I just focus on volatility and price action.

Rhody Trader said:

Yes, yes. Come over to the Dark Side.

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Not necessarily. The question was asked with no agenda. Many beginners use indicators because they think that everybody does, that that's what technical analysis is. Either the thought of trading by price (or price and volume) alone never occurs to them or, even if it does, they have no idea how to go about doing it.

So, unless the OP has some specific reason for turning to indicators at the outset, perhaps he ought not to do so, at least for the time being.

Db

IMO (in my opinion) you can try and follow indicators that other people have developed, but you will always be blindly following something that has been constructed to aid someones trading style. It is better off to learn about how markets move and levels of support and resistance, in order to build up an understanding of markets. The only true way to do this is by studying PA (price action).

Unfortunately, too many traders are looking for a quick fix. That elusive 'holy grail' of trading - you know, that system promised by tons of websites that will give you 1000's of pips a month. All you have to do is sign up for their $2000 e-book learning strategy and that new ferrari will be yours in no time! lol

Don't fall into the trap of being one of those 95% of traders who aren't profitable - it's not much fun.

If your a newbie looking to learn a good way to trade - ie learning about PA an how markets move, a good place to start is this thread on forex factory: Indicator Free Trading - Skunny

There's a ton of information to read through and plenty of exercises to try. The only way you will truly learn how to trade successfully is by following the markets yourself. Everyone's really helpful as well, so if you need some pointers, just ask.

That's my 2 pips on this subject!

Already been said above it depends on what u use as indicators, dont have to be moving average of
some kind that lags. Could very well be price "differences" themselves that be use as very accurate
indicators, just think about OHLC and u will know what I mean.

Backtest your lagging indicator for 15-20 years to see how it performed in all seasons of the market.

Price is the only indicator that I know how to use in EVERY market condition.

LauraRomans said:

Backtest your lagging indicator for 15-20 years to see how it performed in all seasons of the market.

Price is the only indicator that I know how to use in EVERY market condition.

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True and the only time frame you can use it on is a tick chart or one min - to define a bull move up by an HH and a HL and a bear move down by a LH and a LL

The tick and 1 min are the only accurate charts to use

All the rest are history

Yes history can be used to forecast the future - but only with the help of the "now" - ie price movements every second and every minute

That is why every true "master forex trader" can read price at the "coalface"

Until you can - you will never progress

To do it may take 2000 hrs of chart study - or even 5000 hrs ( ie approx 5 yrs for a part time trader) - but once you get over 10k hr - you can trade with accuracy and confidence - although still never with a 100% win ratio - due to price and your eyes and your brain not being able to remain in "sync" all the while


I also believe the "devil is in the detail "

So may I ask if your name is Laura - why are you down as a male on your profile??

Regards

F

Forexmospherian said:

So may I ask if your name is Laura - why are you down as a male on your profile??

Regards

F

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F. Thanks, hadn't edited my profile - the default is male. LOL

Forexmospherian said:

So may I ask if your name is Laura - why are you down as a male on your profile??

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This is quite normal amongst T2W members Fomo. Check out the posts of 'the hare'. A prolific contributor, very intelligent and well written posts, yet s/he couldn't work out if s/he was a boy or a girl!


Btw, while I'm typing, could you remind me again of the exact number of hours I need to put in 'at the coalface' in order to be even half as good as you? Oh, and roughly how many trades would that be?
Tim.