Indicators or Price action

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Aug 11, 2003
5,107
877
173
#1
To use or no to use.........

On the one hand I have a method that uses indicators which albeit are lagging, produce more winners than losers and with tightish stops, more points won than lost, which, with correct money management, produces a profit.

On the other, price action is what all the threads lead to and many veteran posters profess as the only way...

Then on one thread someones consistently profitable using MA's and CCI and VWAP and I've seen it here and there saying some pro's have RSI, stochs and MA's on board and even on Bloomberg and many other 'pro' sites state certain MA's as relevant.

For a newbie learner, I am torn between making a profit although smaller than could be (lagging indicator) and using none at all and generally getting it wrong far more than I do with indicators.

Just because indicators can be lagging (sometimes they can be spot on), if making a profit with them, why shouldn't they be used. I know its all down to personal preferance but there is so much talk of price action being the 'right' way, Id be interested in others views.
 
Likes: wasp and rols

rols

Well-known member
Sep 10, 2004
1,621
335
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#2
wasp said:
To use or no to use.........

On the one hand I have a method that uses indicators which albeit are lagging, produce more winners than losers and with tightish stops, more points won than lost, which, with correct money management, produces a profit.

On the other, price action is what all the threads lead to and many veteran posters profess as the only way...

Then on one thread someones consistently profitable using MA's and CCI and VWAP and I've seen it here and there saying some pro's have RSI, stochs and MA's on board and even on Bloomberg and many other 'pro' sites state certain MA's as relevant.

For a newbie learner, I am torn between making a profit although smaller than could be (lagging indicator) and using none at all and generally getting it wrong far more than I do with indicators.

Just because indicators can be lagging (sometimes they can be spot on), if making a profit with them, why shouldn't they be used. I know its all down to personal preferance but there is so much talk of price action being the 'right' way, Id be interested in others views.
Hello there Wealthy Anglo-Saxon Protestant or member of the Aculeate family! I don't mind which.

As my uncle Harry used to say "The world is your sewer or your oyster. Just depends how you look at it."

The thing about indicators is that they nearly always work in retrospect and it's easy to find any combo to fit any trade if you try hard enough. Not to say they don't work but if you really really think about it, wouldn't you think it a bit odd if making oodles of dough was as easy as a few bits of spaghetti crossing over each other. If everybody found out then we'd all be rich - hang on there would be nobody to trade with cos we'd all be using the same combo of magic indicators.

So. Don't be torn. Be smart! Don't listen to what anybody else is saying (that includes me BTW) and find out for yourself what works and what doesn't work for you - the unique combination of DNA and electrons that you are.

If you're still stuck then take a leaf out of WS' book. Don't look at the charts - look a bit closer to home.
 

marky

Active member
Feb 22, 2003
104
0
26
54
cambridge
#3
i personally use nothing other than price these day, As most on here when first setting out you try every indicator going, In my opinion you have to use what feels right for you, If you are consistently making a profit, and maybe a living trading, with or without indicators then you are clearly doing nothing wrong. also as time goes by you will slowly develop your own method of trading, are alter the way you trade, do what you feel happy with, not what others are doing, and remember you dont have to win every race to be world champion, just be consistent.

Regards Mark
 

Finlayson

Active member
Jun 23, 2003
410
10
28
www.mowermart.co.uk
#4
There is no 'Right way' tho some will try to impress this on you, looks like you already understand this

why should someone else no how you should trade....better than you

Jay
 
Aug 11, 2003
5,107
877
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#5
I assume your goal is to make a consistent profit/possible income from trading.

If you are/can do so with indicators (or price or seasons, moon cycles, rainfall, sounds or any other of a wonderful array) then just keep doing so. As others have already said, there is no right or wrong way, its what fits you and if your making a profit, keep doing so.
 

rols

Well-known member
Sep 10, 2004
1,621
335
93
#6
chrisw said:
I assume your goal is to make a consistent profit/possible income from trading.

If you are/can do so with indicators (or price or seasons, moon cycles, rainfall, sounds or any other of a wonderful array) then just keep doing so. As others have already said, there is no right or wrong way, its what fits you and if your making a profit, keep doing so.
Yeah but , no but, he wouldn't be asking if he were makin' a profit?

What's your magic formula BTW
 
Aug 11, 2003
5,107
877
173
#7
rols said:
Yeah but , no but, he wouldn't be asking if he were makin' a profit?

What's your magic formula BTW
Now that would be telling wouldn't it be rols... You tell me yours and I'll tell you mine!

I think he was asking whether to look to price action as although he was/is making a profit, could he make better with price action rather than indicators.
 
Likes: rols

Charlton

Well-known member
Nov 23, 2003
1,501
325
93
#8
Day and night, summer and winter

wasp said:
To use or no to use.........

On the one hand I have a method that uses indicators which albeit are lagging, produce more winners than losers and with tightish stops, more points won than lost, which, with correct money management, produces a profit.

On the other, price action is what all the threads lead to and many veteran posters profess as the only way...

Then on one thread someones consistently profitable using MA's and CCI and VWAP and I've seen it here and there saying some pro's have RSI, stochs and MA's on board and even on Bloomberg and many other 'pro' sites state certain MA's as relevant.

For a newbie learner, I am torn between making a profit although smaller than could be (lagging indicator) and using none at all and generally getting it wrong far more than I do with indicators.

Just because indicators can be lagging (sometimes they can be spot on), if making a profit with them, why shouldn't they be used. I know its all down to personal preferance but there is so much talk of price action being the 'right' way, Id be interested in others views.
Wasp

Indicators will work some of the time. With any indicator it is necessary to apply it to the right conditions and for the right purpose - some at designed for trend-following, some for reversals, some for momentum and so forth. Indicators are one level removed from price and , so suffer some "degradation" as a result, although they may be more convenient and quick to use.

Price action on its own and indicators on their own work some of the time. They work when they align with the true nature of the market.

When they do not align with the true nature of the market they fail and that is when deeper analysis is required to determine the true nature of the markets.

When we travel in a plane we observe the features of the land passing below us, like the observation of price bars. We may glance at the symbol representing the plane on a map on the TV screen in front of us. Notice how it tends to lag behind what we observe through the window, but generally speaking tells us where we are, what speed we are going and in what direction. However the rotation of the earth about its axis and its journey around the sun are things we are totally unaware of when considering the speed and direction of our plane. The only awareness we have of this background speed is through the effect it has on us i.e. day and night, summer and winter. We have to deduce our true speed and direction from indirect observations such as this.

Charlton
 

rols

Well-known member
Sep 10, 2004
1,621
335
93
#9
chrisw said:
Now that would be telling wouldn't it be rols... You tell me yours and I'll tell you mine!
.
Mine is well documented on the 60 minute trader thread. It involves McVities and PG Tips.
 
Aug 11, 2003
5,107
877
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#10
Okay heres a screenshot of mine...

Bear in mind it only works on a Tuesday and Thursday though...

You have to sell when all the indicators are really really high but it doesn't work for longs.
 

Attachments

rols

Well-known member
Sep 10, 2004
1,621
335
93
#11
chrisw said:
Okay heres a screenshot of mine...

Bear in mind it only works on a Tuesday and Thursday though...

You have to sell when all the indicators are really really high but it doesn't work for longs.
Well that's no bleedin' good for me they're my golf days!

Still trading currency eh - one step away from being a money lender. Be careful!

My biscuit method works everyday!!!
 
Aug 11, 2003
5,107
877
173
#12
rols said:
Well that's no bleedin' good for me they're my golf days!

Still trading currency eh - one step away from being a money lender. Be careful!

My biscuit method works everyday!!!
Does it have to be Mcvities?
 
Mar 14, 2003
1,827
122
73
www.frugi.co.uk
#13
For some reason I imagine Rols is a madeleine man. :)

One reason perhaps to trade without indicators, at least for a while, is that it removes their distraction and forces one to look at price action more closely. It gives one a different perspective. With just the prints to concentrate on processing power is freed up to assimilate, internalise and, with time, understand patterns and other repetitive behaviour that may have initially passed you by. One starts wondering what is happening at certain points and why and this is very helpful for those who wish to try and logically deconstruct the market into its essence. Price action happens in real time and should be studied in real time if the maximum benefit is to be derived. Seeing three or four bars without knowing how they've printed is not quite so informative imho, but certainly a start on the path to 'purity'. :)

But this approach may not suit or yield the results you seek. This does not matter, as there are many ways to carve a niche in the market. For instance, do you like maths, formulae, programming and stats? If so you may be happier taking an approach like, say, Grey1 and building a winning method entirely from indicators, especially if you take time to work out exactly what you want them to tell you and perhaps as a result design & use custom ones that aren't hackneyed and used by thousands. Taking a path away from the crowd is likely to be sensible since the crowd is losing. Those trying to replicate Grey's methods are finding the programming tough and so it should be since he has built an involved and probably unique partially-automated system that, at least for the moment, boasts a solid edge. While those who swear by just a stoch crossover that took all of 4 seconds to set up and are wondering why it kills them regularly, especially in a trending market

Indicators can help with discipline by making decisions easier, e.g either there is a crossover or there isn't, so there's no excuses for not following a plan. They can give one a comforting structure around which to design it. They can be a way of filtering a mass of "grey" data into something black and white. The same can of course be done with price action, such as the Ross type setups which depend on absolute bar formations. Contextual discretion can be applied to both types of approach. There can be benefits to this simplicity, but the application of either method still involves thinking if one is to be profitable. An indicator in the hands of a newbie can promote laziness and a feeling that they do not have to think or be responsible for their method because the indicator does all the "work". It doesn't of course, it is merely a tool, like a price pattern, a Ross Hook or a stock screener. Its merit lies with the user.

As has been said ad nauseam, work out what suits you. We're all different and it's probably no more use trying to force indicator-heavy quant analysis on a mainly intuitive trader than it is trying to tell a proven edge trader to mix a little discretion in her cocktail. Mix and match, taking elements from each if you like.

Remember that as indicator values/patterns only show effects (& not causes) that there is no reason why what has worked will continue to do so, whereas understanding price action at its essential level (thus taking into account the perennial cause-effect relationships that transfer wealth from one group to another) is likely to serve one better in the future. Yes, a price pattern is just an effect too and its efficacy may change as the market shifts, but if you know why that pattern formed with reference to the past then you are in an excellent position. The best way of doing this is surely to study price directly not one if its indicator derivatives.

That said I still use a multiTF RSI setup - that has worked on the Dow for five years - without a hint of shame. I am very fond of it. It throws up some great trades every few weeks and I don't care if RSI is derivative, lagging and arbitrary when it does.Though I still chortle at the idea of all those little RSIs buying to push up the price when they feel themselves swept into a bullish divergence.
 
Likes: wasp

rols

Well-known member
Sep 10, 2004
1,621
335
93
#14
frugi said:
For some reason I imagine Rols is a madeleine man. :)

One reason perhaps to trade without indicators, at least for a while, is that it removes their distraction and forces one to look at price action more closely. It gives one a different perspective. With just the prints to concentrate on processing power is freed up to assimilate, internalise and, with time, understand patterns and other repetitive behaviour that may have initially passed you by. One starts wondering what is happening at certain points and why and this is very helpful for those who wish to try and logically deconstruct the market into its essence. Price action happens in real time and should be studied in real time if the maximum benefit is to be derived. Seeing three or four bars without knowing how they've printed is not quite so informative imho, but certainly a start on the path to 'purity'.

But this approach may not suit or yield the results you seek. This does not matter, as there are many ways to carve a niche in the market. For instance, do you like maths, formulae, programming and stats? If so you may be happier taking an approach like, say, Grey1 and building a winning method entirely from indicators, especially if you take time to work out exactly what you want them to tell you and perhaps as a result design & use custom ones that aren't hackneyed and used by thousands. Taking a path away from the crowd is likely to be sensible since the crowd is losing. Those trying to replicate Grey's methods are finding the programming tough and so it should be since he has built an involved and probably unique partially-automated system that, at least for the moment, boasts a solid edge. While those who swear by just a stoch crossover that took all of 4 seconds to set up and are wondering why it kills them regularly, especially in a trending market

Indicators can help with discipline by making decisions easier, e.g either there is a crossover or there isn't, so there's no excuses for not following a plan. They can give one a comforting structure around which to design it. They can be a way of filtering a mass of "grey" data into something black and white. The same can of course be done with price action, such as the Ross type setups which depend on absolute bar formations. Contextual discretion can be applied to both types of approach. There can be benefits to this simplicity, but the application of either method still involves thinking if one is to be profitable. An indicator in the hands of a newbie can promote laziness and a feeling that they do not have to think or be responsible for their method because the indicator does all the "work". It doesn't of course, it is merely a tool, like a price pattern, a Ross Hook or a stock screener. Its merit lies with the user.

As has been said ad nauseam, work out what suits you. We're all different and it's probably no more use trying to force indicator-heavy quant analysis on a mainly intuitive trader than it is trying to tell a proven edge trader to mix a little discretion in her cocktail. Mix and match, taking elements from each if you like.

Remember that as indicator values/patterns only show effects (& not causes) that there is no reason why what has worked will continue to do so, whereas understanding price action at its essential level (thus taking into account the perennial cause-effect relationships that transfer wealth from one group to another) is likely to serve one better in the future. Yes, a price pattern is just an effect too and its efficacy may change as the market shifts, but if you know why that pattern formed with reference to the past then you are in an excellent position. The best way of doing this is surely to study price directly not one if its indicator derivatives.

That said I still use a multiTF RSI setup - that has worked on the Dow for five years - without a hint of shame. I am very fond of it. It throws up some great trades every few weeks and I don't care if RSI is derivative, lagging and arbitrary when it does.Though I still chortle at the idea of all those little RSIs buying to push up the price when they feel themselves swept into a bullish divergence.
Your allusion to Marcel was more apposite then you will ever know!

I know I shouldn't post copyright material but the below is crown jewels stuff. Hope those can benefit before it is removed.

I now want to talk about illusion, because illusion is what most trading is based on. This in itself is not the problem, the problem is that many traders give the illusion meaning, when often it is meaningless. The illu-sion may take the form of Elliott Waves, Gann analysis, RSI divergence, MACD signals, Stochastics, or whatever. The truth is that none of these mean anything. This is not to say that the signals are false, but they will only be correct on a statistical basis, i.e. they have no meaning. They are only as useful as long as the market concurs by its action, once it stops doing so they are worse than useless. In fact to an extent most of these techniques are merely used as an entry mechanism. Entry is the easy part, it doesn’t really matter how you enter, it is how you exit that counts. Many traders get hooked on the illusion and lose out because they cannot see that it has become meaningless. The trick is to see the entry mechanism for what it is, just a convenient illusion to get you into the market. Successful traders stay with the trade only so long as it ?ts their criterion, once that stops they are out. That is the key – entry is largely irrelevant, its only relevance is to give you a trigger for getting in, plus a stop point. Understand that and you are on your way.
To put this another way, traders are obsessed by entry criterion, but
most techniques you care to mention are merely entry systems, nothing else, it is when we think of it as something else that problems occur. Elliott and Gann are the worst because they pretend to be something they are not right from the start. The truth is that if you trade with the trend it doesn’t really matter where you enter, and if you trade against the trend the same is true. With one form of entry you will win eight times out of ten, with the other you will lose. Can you guess which is which? Actually eight times out of ten is a bit high, but then if you get the trend right maybe not – often though, the perceived trend is not the same as the trend.
In my opinion the purpose of analysis is generally misunderstood. It
is not for market analysis, it is for putting your system in place. You must decide how you want to trade; futures, options, hedging, long term, short term, are all factors which relate to this. You may decide that you want to trade with the trend and hold trades for between three days and three weeks depending on market conditions. You may decide that some form of trend indicator would be useful within your approach. Alterna-tively you may prefer to observe market action and draw appropriate conclusions from that, as I do. But whichever style you adopt you need to decide what triggers you into a trade and also how to get out. Person-ally I leave some of this to intuition, but I am far from perfect in this. But the point I am making is that there is some ?exibility at this stage and the key thing is that the system is in accord with your trading personality and what you are trying to achieve.
Once this is the case you have your system and it merely comes down
to operation. Now the real problems can start. There is a trader in the USA called Joe Ross. Among many other things, he has said “Trade what you see, not what you think.” This is the key phrase when it comes to operation. So many trades are taken because traders become convinced of what might happen, they imagine the riches which would ?ow from that big fall, or that big rally. Wisdom lies in sticking with what you can see.



I repeat the punch line because it is sooooo important!

Wisdom lies in sticking with what you can see.

Now all we have to do open up those mince pies.

Thank you JP!
 
Likes: roguetrader

laptop1

Well-known member
May 26, 2006
1,105
131
73
www.theinterviewwithgod.com
#15
rols said:
Your allusion to Marcel was more apposite then you will ever know!

I know I shouldn't post copyright material but the below is crown jewels stuff. Hope those can benefit before it is removed.

I now want to talk about illusion, because illusion is what most trading is based on. This in itself is not the problem, the problem is that many traders give the illusion meaning, when often it is meaningless. The illu-sion may take the form of Elliott Waves, Gann analysis, RSI divergence, MACD signals, Stochastics, or whatever. The truth is that none of these mean anything. This is not to say that the signals are false, but they will only be correct on a statistical basis, i.e. they have no meaning. They are only as useful as long as the market concurs by its action, once it stops doing so they are worse than useless. In fact to an extent most of these techniques are merely used as an entry mechanism. Entry is the easy part, it doesn’t really matter how you enter, it is how you exit that counts. Many traders get hooked on the illusion and lose out because they cannot see that it has become meaningless. The trick is to see the entry mechanism for what it is, just a convenient illusion to get you into the market. Successful traders stay with the trade only so long as it ?ts their criterion, once that stops they are out. That is the key – entry is largely irrelevant, its only relevance is to give you a trigger for getting in, plus a stop point. Understand that and you are on your way.
To put this another way, traders are obsessed by entry criterion, but
most techniques you care to mention are merely entry systems, nothing else, it is when we think of it as something else that problems occur. Elliott and Gann are the worst because they pretend to be something they are not right from the start. The truth is that if you trade with the trend it doesn’t really matter where you enter, and if you trade against the trend the same is true. With one form of entry you will win eight times out of ten, with the other you will lose. Can you guess which is which? Actually eight times out of ten is a bit high, but then if you get the trend right maybe not – often though, the perceived trend is not the same as the trend.
In my opinion the purpose of analysis is generally misunderstood. It
is not for market analysis, it is for putting your system in place. You must decide how you want to trade; futures, options, hedging, long term, short term, are all factors which relate to this. You may decide that you want to trade with the trend and hold trades for between three days and three weeks depending on market conditions. You may decide that some form of trend indicator would be useful within your approach. Alterna-tively you may prefer to observe market action and draw appropriate conclusions from that, as I do. But whichever style you adopt you need to decide what triggers you into a trade and also how to get out. Person-ally I leave some of this to intuition, but I am far from perfect in this. But the point I am making is that there is some ?exibility at this stage and the key thing is that the system is in accord with your trading personality and what you are trying to achieve.
Once this is the case you have your system and it merely comes down
to operation. Now the real problems can start. There is a trader in the USA called Joe Ross. Among many other things, he has said “Trade what you see, not what you think.” This is the key phrase when it comes to operation. So many trades are taken because traders become convinced of what might happen, they imagine the riches which would ?ow from that big fall, or that big rally. Wisdom lies in sticking with what you can see.



I repeat the punch line because it is sooooo important!

Wisdom lies in sticking with what you can see.

Now all we have to do open up those mince pies.

Thank you JP!
Correct
 
Aug 11, 2003
5,107
877
173
#16
rols said:
Still trading currency eh - one step away from being a money lender. Be careful!
How much do you need then rols? I have very competitive prices :cheesy: All loans come with the choice of biscuits or a pick of your favourite garden cutting implements.
 
Aug 11, 2003
5,107
877
173
#17
Thanks to everyone for their replies.

I particulary appreciate Marky, Finlaysons and Chrisw replies in the essence of 'there is no right or wrong way, only your way' and that whether you use price alone or indicators, if it makes money and fits you go with it. The 'if it ain't broke, don't fix it' saying comes to mind.

I appreciate what you say, Charlton and Frugi, and do understand what your trying to convey but, even though my indicator setup with their simple maths equations lag slightly, they do produce a much better % than my previous attempts at discretionary price interpretation analysis.

Thanks all and I think I'll stick with what I have now, I understand why the indictors tell me what they do, and I can sometimes see it (price action) happening underneath the indicators but at the end of the day, I make more money having them there than not, and that is why I do it!
 
Jul 10, 2003
8,395
1,169
223
www.trade2win.com
#18
rols said:
Yeah but , no but, he wouldn't be asking if he were makin' a profit?
Au contraire mon generale. You've obviously forgotten more than you ever knew. :rolleyes:

rols said:
On the one hand I have a method that uses indicators which albeit are lagging, produce more winners than losers and with tightish stops, more points won than lost, which, with correct money management, produces a profit.
WASP - I'm glad you have a system which is currently producing a profit. And who is anyone else to advise you to do anything than what you are currently doing?

But (I'm just about to advise you to do something other to what you're currently doing) all indicators are lagging. They can't ever be anything else, regardless of the timeframe you're using.

I have successfully used indicator based strategies in the past and only one has stood the test of time (2 years so far) and you mentioned that above. But I don't get setups on that every single day and it doesn't work that much better than my other non-indicator based strats even when I do get them. But I LIKE trading it.

However, nothing works all the time. And the further you are from reality (price, time & volume) the more wiggle you're going to experience in your trading P&L.

Sure, keep what's working now - you'd be crazy to ditch it. And why not do research on other indicator based systems as well. You can't ever put in too much time. But the closer you get to not needing the blighters, the better your performance overall, and in all market conditions, will be.
 
Apr 3, 2005
35
1
18
#19
At the end of the day, making money is the ultimate goal of most all traders. In order to do so it is a simple matter of fact that one must win more than he loses.

A large part of your longevity as a trader is to do with risk control, for example, you can still make consistent money even with a 50% trade success rate if (on average) your winning trades amount to twice the value of losing trades.

There is an exclusivity and snobbery aboutf being able to trade by price alone, but if you're grinding out consistent profits with your indicators, where's the problem? :)
 
Likes: wasp
Aug 11, 2003
5,107
877
173
#20
TheBramble said:
Au contraire mon generale. You've obviously forgotten more than you ever knew. :rolleyes:



WASP - I'm glad you have a system which is currently producing a profit. And who is anyone else to advise you to do anything than what you are currently doing?

But (I'm just about to advise you to do something other to what you're currently doing) all indicators are lagging. They can't ever be anything else, regardless of the timeframe you're using.

I have successfully used indicator based strategies in the past and only one has stood the test of time (2 years so far) and you mentioned that above. But I don't get setups on that every single day and it doesn't work that much better than my other non-indicator based strats even when I do get them. But I LIKE trading it.

However, nothing works all the time. And the further you are from reality (price, time & volume) the more wiggle you're going to experience in your trading P&L.

Sure, keep what's working now - you'd be crazy to ditch it. And why not do research on other indicator based systems as well. You can't ever put in too much time. But the closer you get to not needing the blighters, the better your performance overall, and in all market conditions, will be.
All well and good IF you can understand price action better. Price action is the way for me and many others but, even price action won't always work and as markets change both indicators and price action set ups can become defunct. Both need to be adapted with the markets and whatever profits more, stay with it IMO.


wasp said:
Thanks to everyone for their replies.

I particulary appreciate Marky, Finlaysons and Chrisw replies in the essence of 'there is no right or wrong way, only your way' and that whether you use price alone or indicators, if it makes money and fits you go with it. The 'if it ain't broke, don't fix it' saying comes to mind.

I appreciate what you say, Charlton and Frugi, and do understand what your trying to convey but, even though my indicator setup with their simple maths equations lag slightly, they do produce a much better % than my previous attempts at discretionary price interpretation analysis.

Thanks all and I think I'll stick with what I have now, I understand why the indictors tell me what they do, and I can sometimes see it (price action) happening underneath the indicators but at the end of the day, I make more money having them there than not, and that is why I do it!