For Newbies: Why Indicators Don't Work

verial

Member
53 4
I read your gap/options thread. Well done and good luck with your newsletter. To each their own... I only started beating the market when I stopped relying heavily on the standard, proven indicators. I still use them but with A LOT of discretion.

To your point, I suppose this is not a worthy topic, although it's been argued exhaustively in this forum. Honestly, I don't know what I was thinking. So to that extent, I'm not posting any further in this thread. The topic only invites more argument and there is no point in that.

My bad.

You seem like a genuine person. The fact that you've used indicators before trashing them means that you're legit. My only question would be how you chose those indicators.

I think too many people hear of indicators and start using them without performing any research. One should always look into the statistics behind each indicator and what market(s) those indicators are based upon. Without solid facts, no indicator is worth anything.

Now it's your turn: What's the alternative to indicators? Intuition? News? Gossip?
 

Wicked_Daddy

Active member
128 48
You seem like a genuine person. The fact that you've used indicators before trashing them means that you're legit. My only question would be how you chose those indicators.

I think too many people hear of indicators and start using them without performing any research. One should always look into the statistics behind each indicator and what market(s) those indicators are based upon. Without solid facts, no indicator is worth anything.

Now it's your turn: What's the alternative to indicators? Intuition? News? Gossip?

OK, discussion continues. And thanks to everyone for the positive votes. I agree that the title I chose is too strong for the intended content. It's not that indicators don't work. They neither work nor don't work - they only indicate what has happened and provide historical insight on the probability of what could happen. I think the key word in my title is the "Why" as to why they are often misunderstood, giving the impression that they don't work. Many traders don't read them correctly in the present because the past indications are skewed by what happened after a purposeful indication was made. It was basically a word of caution based on my discovery at some point while I was manually back-testing some chosen indicators and found the results of too many strong indications to be false in the short term. I'm a short term trader so this was a problem.

It has been pointed out in this discussion the higher time frame benefits of an indicator's use and I agree. I do use MACD, Stochastic and RSI on a regular basis, among others. For the most part, to determine the strength of an overall trend so that I short term trade in the proper direction. I take small bites, use tiny stops and seek to make immediate pips in minutes. Entering a trade and then watching it reverse even a few pips drives me bananas. So I make every effort to make sure I have momentum at my back. Respecting a steeply divergent MACD or a Stochastic in the middle of the range with a steep curve helps me do that. Using them in tandem adds a degree of confidence. I recognize that I am an emotional trader. I loathe negative numbers in the trade. So long term doesn't work for me, although I'm really trying to overcome that because I'd like to trade less and goof off more.

An alternative to indicators? I've certainly modified indicators to see if I can get them to fit short time frames better but that just creates more noise. It reminds of a phrase I learned in another life as a sound and recording engineer: "The more toys, the more noise". Very true. I don't think there is an alternative but I would say that less is more. Like most traders in their early discovery phase of their trading careers, I piled them on in an attempt to create a mistake proof entry/exit strategy. I missed so many opportunities trying to figure out what to do. I literally trapped myself in an indicator prison. That's funny to me now.

Intuition, news and gossip are all important factors too. News and gossip can beat up an indicator in a moment's notice. Perhaps in the long term, not so much. But when trading short runs, grabbing 5-10 pips, a sudden explosion due to a blurb that hits the news wire can either crash my trade or send me merrily to the bank. As I have matured as trader, I find intuition plays a role more and more as well.

To close, it's ALL important. As traders, I believe we learn to elevate our power of concentration to a level that non-traders probably could not understand but athletes and snipers would. I found that is the true challenge of trading; finding your zen. There is a lot to consider when setting up and ultimately entering and even more so (IMO) when exiting. Indicators, when understood and used with discretion can help with those decisions.

As a side note, I know my posts have a tendency to be long. I'm finding that posting here takes my mind off my current trade as I fight to take a longer term approach. At his moment I have been in the EU with a short since 0830 CST at 1.1224 and it's doing very well. Typing this has kept me from staring at it the whole time with my finger on the trigger to exit. It's at 1.1192 and that looks good to me - more pips than I usually take in a single trade. So thanks to all for the therapy!
 
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Fugazsy

Veteren member
3,661 677
Price is also an indicator. And guess what ? That lags....but like other indicators , it can INDICATE , COMMUNICATE,

shhhh, listen , bubbs. Do you hear that ? The whispering winds of shjt ! There's a shjt storm a coming, but ya picked the wrong side....

:cheesy:

lol.

so true.
 
 
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