Are indicators worthless?

[jacknapier]

I ditched stochastic's a long time ago. Recently, I pulled it up again to have another look at it, as I thought that maybe I had missed something. I didn't. I'm thoroughly convinced that I could draw a random squiggly line across the bottom of a chart and have just as reliable buy/sell signals. I wonder, if I could find a way to test that?

 

[intradaybill]

Most indicators are worthless because they lag prices. To make money trading you need either a forward looking indicator or in the worst case a coincident indicator. Keep this in mind and it will save you a lot of money. I am not aware of any forward looking indicator, naturally. The closest thing you can get to coincident indicators is price patterns. Google for "price action lab". That program can find many price patterns that have historical win rates you specify. Some will be flukes but some work very well. You can use a cross-validation test to separate the good from the bad. Stay away from indicators. I paid too much using them.

 

[tomorton]

jack - I very much agree, the best indicator is your eye. You could indeed run a check on the value of indicators but it would be simpler to use a random horizontal line - buy above, sell below?

The only indicator I use at present is moving averages, but only to confirm my perception of trend direction from the price bars themselves. But I am looking at a way of aggregating the shares in an index that are in up / downtrends and giving buy / sell signals on the day to get an idea of market breadth and sentiment.

 

[forker]

All you need is price

 

[NVP]

All indicators are worthless....but some are less worthless than others .....

 

[The Leopard]

They're worthless to me. That doesn't have any significance for anyone else of course.

 

[the hare]

they have no predictive power, but they are far from worthless. Quite the opposite in fact.

There's a bit of a problem in that the way people are encouraged to use them is generally not favorable, quite the opposite in fact, but that in itself is almost an edge isn't it.

 

[Rhody Trader]

A major problem with indicators is that people use them blindly without understanding what exactly they are meant to show. They are simply filters through which we look at market action in different ways.

 

[wackypete2]

A few good posts here.


Peter

 

[simple-stock-trading]

I think that the most important indicator is volume for stock trading. Price and volume and chart analysis is enough to trade profitably.

 

[Shakone]

I think you should use indicators that tell you something you couldn't already determine accurately and unambiguously (this is the important part for me) from price. I can estimate whether there is enough movement at the moment for my strategy to work, but I'd rather have a clear cut tool that calculates and tells me. I don't want to be debating it in my head, because I have other things I need to concentrate on. Sometimes it's good to be clear and simple.

 

[Enzzo]

I personally never found any consistency using any indicator (at the time I tested them in my very beginnings).... but with this said, I can perfectly agree that for some traders they are a great tool.... just that I couldn't make anything good out of them, doesn't mean they are bad or anything like that at all.....

Apart from this, I find very curious that a lot of people totally crucify indicators, and traders using them, because they "lag price", and the "only genuine way" to go, is going with the "price action"..... well, as far as this sounds very "right", and very "fancy", the weird thing for me, is that many of these traders rely 100% on candle formations (pin bars, outside bars, etc, etc....) to trade right off them...

Do you also see the paradox here?

 

[bbmac]

At the risk of repeating any of the points made aleady - to say indicators are worthless is too simplistic and wrong. It is probably true to say that most that say this have not found a way to use indicators themselves - that adds anything to their own bottom line, For me I use indicators - I know what the indicators I use may be indicating on the t/f's I use them, and I use them to possibly indicate to me something about price that price alone cannot tell me. To this extent their repeating patterns are part of the overall trading edge that I have developed and help me to find as near as possible to the optimum entry point to the instruments (s) I trade, on the t/f's I trade using them.

There is only one price but there are thousands of indicators and a myriad of different settings of those indicators across different time frames. So many look for a simplistic 'when it is over 80- or below 20' (for eg) use of them which is to a very large extent tomiss the point ...If you use them - look for indicators to add confluence to your reading of what price may be telling you about market behaviour- not the other way round.

G/L

 

[bbmac]

eg

Here is an example...When price is trending it tends to be ' overbougfht ' or ' oversold' - that is the very definition of a trend , ie buying volume outwighs selling volume / selling volume outweighs buying colume leading to price rising/falling respectively...in the example below porice was in an opa down trend on t/f's to 1hr (opa = overall price action - fractal swing hi/lo analysis) and arrived at a previous near-term fractal swing lo zone on 1hr that was co-existant as such on 4hr also...ie a near-term imbalance of demand over supply that saw price rise from that area. As price arrived at the zone there existed a repeating bullish regular divergence sewt-up on the 1min t/f that was supported by a classic repeating 'oversold' set-up oin the 5min..Price action on subsequently higher t/f's tended to suggest that residual demand existed at this zone and price began to rise...It was the repeating 'reversal/contra-trend/mov) set-ups comprised of indicators on t/f's below (and sometimes to and higher than) that which the potential support zone was most obvious that were confirming what price was beginning to suggest that made going long from this area a high probaility tarding opportunity.

(Of course the next question is whether it is a reversal or merely a pullback - but that is a whole other discussion lol.) The point illustraed here is that an intelligent use of indicators can add to a suitable trading edge. You can see on the 1min set-up that the trigger for entry was the close of the master bullish engulfing x 4 that engulfed the previous 4 candle bodies.

G/L

 

[Soloquan]

I love bbmac. This guy is like the wise old owl of T2W. I love reading all the lulz posts then bbmac comes along and everything is alright with the world again.

 

[Patricia12]

Yes, most of the indicators are worthless, only few are helpful. It is difficult to find out profitable indicators. You should use only indicators those are suggested by a reliable trader or friends.

 

[trendie]

indicators are as worthless or as priceless as you make them to be.

they are merely indicators, a shorthand for alerting the trader for possibilities.
but the potential of these possibilities have to be determined by the trader himself after looking at the context of the indicator.

my sample screenshot of a pullback trade.
not all pullbacks are valid.
not all OB/OS are valid.
they dont always work.

in the example,
a: the long-term Stochs is above the 50 line, so long minded. (clinical)
b: the short-term is OS, so a pullback entry into the long-direction. (clinical)
c: the dotted guidelines can be used as a trigger. ie, pullback below, and trigger long if close above. (clinical)
d: broad context: the OS happens after a higher high, and is about the place of the previous high.
this is the grey-matter use and meta-context which allows the signal to be validated. (judgement from meta-view)

shooting for 25-30 for a 15-20 risk.

PS: I am not saying I took this, nor am I saying this is the ONLY way to trade.
nor is it the ONLY set of indicators that can achieve such stuff.
just saying its a use of indicators to give alerts for higher-than-chance possibilities.

PPS: I think bbmac is pretty cool too. but only because he uses indicators too!

 

[forker]

The structure just before that is a trade I would have taken.

 

[Mrs M]

I think that a lot of traders take a combative approach to indicators. If there was an indicator that could accurately predict the future – we'd all be using that one, and we'd all be rich. They are there to help you make sense of price action on your charts. If you find they're not helping to make your chart simpler – then get rid of them. If they make things clearer for you – then great. And all of them have weaknesses. Overbought and oversold indicators, for example, are going to really struggle in trends. I recently read a great article called "The secret to a long and happy relationship with your technical indicators" – great advice on learning to love them (flaws and all)!

 

[rathcoole_exile]

I am not aware of any forward looking indicator, naturally.

natural levels such as 00s ?
Pivot Points ?
horizontal lines drawn at random ?
previous Swing Highs/Lows ?

they can all be used to pre-plan an action if a certain level is touched