Indicators - are they worth the trouble?

[cz4802]

Hi,

Having traded on the demo fx account recently and previously on stocks using charts I am coming to the conclusion that using indicators is a waste of time. I would love to be able to derive "signals" from using these indicators (I've especially studied the MACD, Stochastic and BB in forex and ADX, Momentum, CCI, ROC in Stocks) but I get as much an inkling about future rates/prices from just a couple of EMAs and more quickly.


Since I read and hear so much about indicators I sometimes think thay I am not reading them correctly but then I come across a website, for example, analysing todays Euro charts showing a screen shot from OANDA charts with a mass of lines and almost all the indicators available in OANDA. The conclusion on the site is that its "long from now on". What gets me is that my wife had come to the same conclusion , several hours ago, after a cursory glance at my screen as she was walking past showing a couple EMAs and candles!!

I certainly do not at intend to knock anybody's analysis and the methods they use but the questions I need an answer to is "Are Indicators Oversold?" .

 

[frugi]

IMHO it is sensible to divert one's valuable concentration from straight derivatives of price (most indicators) to price only, as then one may have a clearer, first-hand view of the proceedings.

As everyone knows an overbought stochastic isn't going to stop Merrill buying 4000 cars at the top of the hour.

What gets me is that my wife had come to the same conclusion , several hours ago, after a cursory glance at my screen as she was walking past showing a couple EMAs and candles!!

Exactly. Perhaps you've just answered your own question. Why complicate an already tough challenge with formulae that merely show what is already printed, in a different and often distracting form? LOL that may provoke an unfavourable response. I speak as one who used a cornucopia of indicators in the past and, disillusioned by their unreliability & failure to cut to the quick of price action, asked the very same question you just have.

Dropping 95% of them was the best thing I ever did. Sure I still use the odd one as a point of reference, but never as a signal. Of course this is a personal choice and I'm not knocking those that use indicators successfully as part of their method.

 

[zuke]

IMHO indicators are a "nice to have" tool to have a side glance at but nothing more. Most are lagging anyway and hence can give you confirmation but not "signals" imo. I used to be an indicator junkie using BB, RSI, Stochs, AROON, TRIX, ADX..you name it, it was on my chart!! I used all of them because I was an insecure (and incompetent!) trader who needed to feel that I was a rocket scientist with all of the bells and whistles on my chart. I used to love it when non traders would look at the chart and say "Wow!, that looks so complicated!!

I ditched masses of indicators a few year back and it was the best thing I ever did. I now use 1 or 2 at most. Depending on whether its a trending, flat or oscillating market.

 

[SvenFoster]

I agree with all posts so far. I've had squillions of indicators, some indicators and now none.
Problem I have with them is I try to second guess them and basically don't trust them. That led me to the conclusion.... "hang on, If don't i trust them why have them on the screen"

However some people trade with, others without. You need to go round the the entire mill until you draw your own conclusion.
I truly believe 100% that discretionary traders will win in the end but acknowledge that there are many sucessful traders using indicators

I am a developer by profession and so was naturally drawn to indicators and software etc..
The reason that indicators are so popular is that how else do you sell systems? and to a newbie(I'm a novicebie) it looks like they are the answer to quick riches.

Now all that said, when I'm rich and full time( ) I will most likely revisit automation and may rely on indicators etc.

I ditched masses of indicators a few year back and it was the best thing I ever did. I now use 1 or 2 at most. Depending on whether its a trending, flat or oscillating market.

Zuke I'm curious if you determine the trending/flat/oscillating market from the 1 or 2 indicators or you use the braindicator tm to determine the current state of the market

 

[Grey1]

Generally speaking there are two types of indicators

Class 1 .. those indicators that do not include the Cycle Amplitude as a variable parameter in their design such as Wilder RSI, Standard MA, CCI and 1000 more ( some of these indicators use a fixed number in their design such as 14 in WIlder RSI ,...)

Class 2 those indicators that use CYCLE Amplitude as a variable in their design such as John Ehler indicators

class 1 indicators are 100 % subjective Hence useless
class 2 indicators have an element of objectivity in them hence far better approach


PS:-- a good indicator should calculate at what stage of the cylce the current price is so one could measure how far is from the top or the bottom of the cycle to entre the trade ..


Grey 1

 

[jcwonder8]

Generally speaking there are two types of indicators

Class 1 .. those indicators that do not include the Cycle Amplitude as a variable parameter in their design such as Wilder RSI, Standard MA, CCI and 1000 more ( some of these indicators use a fixed number in their design such as 14 in WIlder RSI ,...)

Class 2 those indicators that use CYCLE Amplitude as a variable in their design such as John Ehler indicators

class 1 indicators are 100 % subjective Hence useless
class 2 indicators have an element of objectivity in them hence far better approach


PS:-- a good indicator should calculate at what stage of the cylce the current price is so one could measure how far is from the top or the bottom of the cycle to entre the trade ..


Grey 1

I'm interested in and investigating the ehlers indicators but simple ema crossover indicators on intraday volume charts work well outside of first 10 mins, lunchtime lull, low volume pre report times etc- All indicators are useless if you use them out of context in a purely mechanical way. Indicators also help you to read price action when you start and it all seems to make as much sense as the Matrix titles. I looked at the kase peak oscillator but didn't seem as useful as stochs and emas driven off h/l range.
I'd be interested in any charts showing fixed intraday cycles in the index futures. Out of trend days much of the action seems to be artificially driven movement by professionals tagging off pivots flagged by volume spikes on time charts rather than being composed of fixed cycles.

 

[nd1377]

Indicators, I don't need no stinking indicators. Indicators are derived from price and they are lagging. When I first started trading, I used and tested about every indicator you can think of and then I threw them out the window. It was amazing how clear it all became. I found the holy grail. Never give up in your search.

 

[nine]

Not saying that I would use any of them anyway but this is not really correct. The "fixed number" in the RSI or CCI etc is the "cycle sensitive component." Changing the number changes the "cycle length" that they show divergence, std or reverse, for so they are cycle sensitive.

Personally I favour a minimum of indicators and would recommend using them only to alert you to something happening in price that you might miss otherwise. An example is using divergence to warn you that price momentum is declining. Another good use is to be aware of what other people would be doing so that you can lead them, follow them or fade them. IMO of course.

Generally speaking there are two types of indicators

Class 1 .. those indicators that do not include the Cycle Amplitude as a variable parameter in their design such as Wilder RSI, Standard MA, CCI and 1000 more ( some of these indicators use a fixed number in their design such as 14 in WIlder RSI ,...)

Class 2 those indicators that use CYCLE Amplitude as a variable in their design such as John Ehler indicators

class 1 indicators are 100 % subjective Hence useless
class 2 indicators have an element of objectivity in them hence far better approach


PS:-- a good indicator should calculate at what stage of the cylce the current price is so one could measure how far is from the top or the bottom of the cycle to entre the trade ..


Grey 1

 

[timsk]

Cycle Amplitude as a variable parameter in their design

Grey1,
For the benefit of those people following this thread who aren't quite up to speed on the technicalities of indicators (hope I'm not the only one!) - could you outline in simple layman's terms what you mean by indicators that include or exclude 'cycle amplitude as a variable parameter in their design'.
Many thanks,
Tim.

 

[DaveJB]

You might like to glance at this Tim,
http://www.traders.com/Documentation/FEEDbk_docs/Abstracts_new/Ehlers/ehlers.html

showing what John Ehlers has recently mentioned....
JE is repsonsible for MESA, which you can add onto eSignal, buy sytandalone, and so on. You can get a rather good overview from the home site at http://www.mesasoftware.com/

Briefly - looking for cycles in price data, but recognising that the cycles go through periods where there's no trend and you are better off using another method to trade. A very crude one liner, but not a million miles off <g>
Dave

 

[timsk]

You might like to glance at this Tim,

Thanks for the links Dave. I had a quick glance but, like a rabbit frozen motionless in the glare of headlights, I found myself blinded by science. I take my hat off to anyone who can get their head around this approach and apply it successfully to their trading. I sure ain't one of 'em! So, I'll retreat into my burrow - the one marked 'price, volume, support and resistance!'
Merry Christmas to you all.
Tim.

 

[Grey1]

Grey1,
For the benefit of those people following this thread who aren't quite up to speed on the technicalities of indicators (hope I'm not the only one!) - could you outline in simple layman's terms what you mean by indicators that include or exclude 'cycle amplitude as a variable parameter in their design'.
Many thanks,
Tim.

Timsuk

As a trader we believe market is not random and goes through cycles.. since there is a cycle there is a opportunity to make $$$ provided we could measure

1) The frequency of the cycle
2) Height or amplitude of the cycle .

By knowing the above two parameters we then should be able to buy bottom ( OVER SOLD ) sell top ( OVER BOUGHT ) .. Simple concept


Now lets look at RSI .. RSI is a simple oscillator which gives OVER SOLD , OVER BOUGHT signal but does not use any of the above two parameters in its design .. ( Mr Wilders assumes 14 Unit of time frame as the bases for cycle measurement to make the life easy for our traders but that has very little mathematical foundation hence kinda useless.. )

John Ehler of MESSA software noticed the same problem with oscillators such as RSI and designed a set of indicators that use both above parameters to measure the market cycle objectively , hence makeing it more adaptive resulting in far far better oscillatory signals ( OVER BOUGHT , OVER SOLD )

Let me know if this is clear enough ..

Grey1

 

[timsk]

Let me know if this is clear enough ..

Very clear Grey1, thank you. It sounds like magic and too good to be true which leads me to suspect that utilising Ehlers ideas and software is probably an art - or science - in itself. If it was easy to understand and apply, every trader under the sun would use it which, ultimately, would lead to the disruption of the cycles themselves and, ergo, the effectiveness of the software.
Tim.

 

[forker]

aaaah, the age old debate... and as usual i say chuck them out. your better serving your tradng experience and education learning price structure .

 

[montmorencyt2w]

aaaah, the age old debate... and as usual i say chuck them out. your better serving your tradng experience and education learning price structure .

Over three years old actually This train left ages ago, and everyone is at the price action station by now ...

Well, maybe not everyone.