Chart Patterns & Technical Indicators...

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Old Mar 19, 2006, 10:48pm   #1
 
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Arrow Chart Patterns & Technical Indicators...?

Hi Guys,
I have a couple of questions regarding trading with Chart Patterns and Indicators. I'll appreciate some explanation in this regarding so that I can have clearer concept. I understand the fact that one should not be using too many technical indicators because it can be confusing. My questions are as follows:

1) Which one or a combination of the technical indicators(like MACD, CCI, BOLLINGER
BANDS
) can be used effectively while trade chart patterns. Anyone would like to share their experience.

2) Should one be trading only with one method at a time i.e either using technical indicators or
with Chart Patterns.

3) Among the technical indicator mentioned above which ones are for the short term and which
one are for the long term. For me short term is anywhere between 5-15 day and long term is
over 15 days to a month or more.

Thanks in advance for your input.

Last edited by pasha; Mar 20, 2006 at 12:10pm.
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Old Mar 20, 2006, 8:56pm   #2
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Quote:
Originally Posted by pasha
1) Which one or a combination of the technical indicators(like MACD, CCI, BOLLINGER BANDS) can be used effectively while trade chart patterns. Anyone would like to share their experience.

2) Should one be trading only with one method at a time i.e either using technical indicators or with Chart Patterns.

3) Among the technical indicator mentioned above which ones are for the short term and which one are for the long term. For me short term is anywhere between 5-15 day and long term is over 15 days to a month or more.
Hi pasha,
Welcome to T2W.
The reason that you've not had a reply to your questions is, I suspect, because there are no definitive answers. Horses for courses: what works for one trader may not work for you. I'll illustrate my point with an analogy. When I make a fruit salad, I like to add some apple for some 'crunch'. However, my wife does not like any 'crunch' in her fruit salad and so hers contain only soft fruits. I've got no idea what flavours and textures you enjoy in a fruit salad, so I can't offer any really useful hints as to what to put in it. And so it is with indicators and patterns.

1) All the indicators that you list - and many more besides - are popular and 'can be used effectively' in various combinations. On the other hand, some traders prefer to trade by price and volume alone and don't utilise any indicators at all.

2) Speaking personally, the word 'should' is one of the most dangerous and misused words in the English language. I'm struggling to think of an appropriate use of it in a trading context. The answer to your question is to do whatever works for you. The balance of technical indicators vs chart patterns is a red herring, IMO.

3) All the indicators you list may be used in the short term and long term time frames. What ever indicators you end up using, (if any at all), be sure to have a good understanding of how they are calculated as well as what they are telling you. Even more importantly, have a sound understanding of their limitations and what they aren't telling you - at least until it's too late!

Good luck
Tim.
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Old Mar 21, 2006, 12:26pm   #3
 
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Joined Dec 2005
When deciding upon indicators, it should be remembered that the vast majority of the various indicators available are essentially just price and volume information presented in a differant format. Therefore asking which indicators to use (or whether to use them at all) is like asking whether a car journey should be measured in miles or kilometres. You'll get a multitude of differant views because it's a subjective value judgement that each individual must make for themselves.

The best strategy in my opinion is to take one indicator you think may be useful and study it THOUROUGHLY. Only when you have a deep and complete understanding of exactly what an indicator is telling you can you assess whether it's of significant value to you or not. If you find yourself asking the advice of others about it then you probably won't be able to use it properly anyway.

What I'm saying essentially is that there are no shortcuts. One thing that all successful traders seem to have in common is that they develop there own systems based on their own unique understanding. That can only come from hard work and experience. One traders opinion of the value of any piece of information is of limited value to others because no two of us trade in an identical way.
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Old Mar 21, 2006, 7:39pm   #4
 
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Price action or indicators

Quote:
Originally Posted by pasha
Hi Guys,
I have a couple of questions regarding trading with Chart Patterns and Indicators. I'll appreciate some explanation in this regarding so that I can have clearer concept. I understand the fact that one should not be using too many technical indicators because it can be confusing. My questions are as follows:

1) Which one or a combination of the technical indicators(like MACD, CCI, BOLLINGER
BANDS
) can be used effectively while trade chart patterns. Anyone would like to share their experience.

2) Should one be trading only with one method at a time i.e either using technical indicators or
with Chart Patterns.

3) Among the technical indicator mentioned above which ones are for the short term and which
one are for the long term. For me short term is anywhere between 5-15 day and long term is
over 15 days to a month or more.

Thanks in advance for your input.
Pasha
You will find that many people on this site don't use indicators, but examine price and volume action. As Vorbis said, most indicators, are derivatives of these two and therefore one level removed from the basic underlying information avaialble to you.

So the first recommendation is to examine the patterns occurring in charts looking at both price and volume to start to understand how the markets move. Candlestick charts are popular because they illustrate opening, closing, high and low prices in a very obvious way. There is quite an industry in candlestick recognition if you wanted to go down that route or improve your Japanese !

Try to predict what will happen on the right hand edge of the chart.

Secondly you need to determine the timescales you are interested in the style of trader. Are you going to hold positions for seconds, minutes, days, weeks, months or years ?

Then decide on your style of trading - do you want to look for trends in the market and follow those ? Do you want to look for swings, predicting what the cycles are (possibily within longer term trends) ? Are you looking for breakouts ?

The reason for asking these questions is that, if you decide to use indicators they fall into various categories. Some are suitable for monitoring trends e.g. moving averages and so are more suited for position trading over longer timescales. Others are suitable for monitoring swings. These are the cycle or momentum indicators such as RSI, Bollnger and stochastic.

The following site http://www.incrediblecharts.com/technical/ gives lists of indicators with descriptions and their categorisation.

If you are going to use indicators add them into the charts you have been studying and see what extra information, if any, they provide above the basic price, volume and patterns you have been observing.

You can use chart patterns and indicators together. Some people use indicators as confirmation signals that their reading of a chart is correct. You should be aware that indicators can appear to conflict with each other. They may well do so over different timescales e.g. if you hold positions for several days try looking at intraday charts for entry/exit signals (possibility using breakout indicators), try looking at EOD charts for trends and compare to monthly charts also. See how there are cycles within longer term trends and how the same indicator might suggest different actions depending on whether it is used on the shorter term or longer term chart.

Don't try to use too many indicators for the same reasons as given above - conflict.

Don't use an indicator without really understanding how its formula works.

If you like programming languages you might also look on trading software sites at their function libraries, which also show how indicators are created and may be modified. For example Amibroker AFL library http://www.amibroker.com/guide/afl/afl_index.php?m=2

If this all doesn't put you off indicators I don't know what will !! As Vorbis said, there are no short cuts, no magic formulae, but plenty of hard work if you want it.

Charlton
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