Hi Norman,
Welcome to T2W.
. . .To cut the story short, I generally found there doesn’t seem to be a definitive way to achieve consistent results with technical indicators alone. . .
As generalizations go, it's fair to say that technical indicators tend to get bad press here on T2W. Those that use them (and plenty do) tend to keep their head beneath the parapet for fear of getting it shot off. Most members would rather admit to to being gay than using indicators. Not that there's any correlation between the two of course!
The real problem - IMO - is not with the indicators themselves which, after all, are for the most part just mathematical calculations based on historical price movement and volume, but with the traders using them. They approach them in completely the wrong way. By that I mean they tend to go from one to the other in the hope that they'll stumble across the magical one that gives them **** on perfect entry and exit points every time. This is a fantasy - it ain't gonna happen.
So, what is the best way to use them? A good starting point is is answer this question:
what information do I want/need to know that I can't easily obtain from looking at a 'naked' price chart or a level 1 screen? Needless to say, the answer to the question must not be:
I want a magical indicator that gives me **** on perfect entry and exit points every time! This will at least help to narrow down the type of indicator you want to look for.
Having an indicator do a specific job that it's designed to do well and then using it for that very purpose is half the battle. The next step is to understand how it is calculated. This will give you confidence both in the indicator itself and your ability to use it correctly. Using it correctly means understanding what it's limitations are and when and why the thing it indicates may not be reliable.
So, for example, let's suppose you want to trade your chosen instrument when market volatility is above a certain level. You might choose the Average True Range (ATR) indicator and only take trades when ATR gives a reading above a predefined threshold. When I day traded U.S. stocks, I used it as a means to determine the position of my stop loss and then, in turn, my position size. It worked extremely well.
. . .So my question is what techniques do professional traders actually use to achieve a relatively positive profit/loss ratio greater than 2:1? Is it just all luck?. . .
There are any number of indicators out there and they can be used in any number of ways and in myriad of combinations. The right one(s) for you are unlikely to be the same as the ones that are right for me or anyone else. It comes down to you and your style of trading.
. . .Does trend analysis using no indicators really have some merit to it?
In a word: yes. That is to say, whether you use indicators or not - either way - trend analysis will serve you well. I've lost count of the number of members who've complained about their indicator of choice giving a false sell signal in a strong bull trend.
"I went short XYZ because RSI indicated the instrument was severely overbought" they moan. Yeah, it will, and this is a good example of why it's essential to understand how the indicator is calculated, what it's indicating and why and when one needs to ignore it.
Hope that helps!
Tim.
