Technical Indicators are irrelevant when trading - Discuss

[unilever03]

I have come across the view that using indicators in analysis and different strategies is a meaningless activity, due to the fact they present what you already know but just in a different way. e.g applying a formula in order to get an indicator is just giving you a manipulation of data you already have. Does the indicator have any significance?

I think the essence of what I'm asking is, do indicators just present data you know just in a different way? And if it is just manipulated data does it have any significance in analysis?

 

[Rhody Trader]

Every way of looking at the data, unless you're looking just at the individual ticks, is a manipulation in one fashion or another. It's a question of how many layers of manipulation you want, meaning how far you're willing to get from the real deal. Charts are level 1. Indicators based on chart data are a level on top of that. Many indicators, like MACD where they are averaging initial indications, add another layer.

This isn't an indictment of indicators. I'm just saying that to use them correctly you need to understand what they are measuring and telling you.

As the saying goes - The map is not the territory (the chart and indicators being the map).

 

[dcraig1]

Not all "indicators" are derived from price/volume eg market internals, breadth, market delta etc etc. How about the order flow ?

If you have a view of the market that has an element of cyclicity, then indicators derived from price time series may help identify cycles.

Personally, I find these threads completely pointless. Why don't you talk about your preferred aproach rather than than just dismiss "indicators" which has been done thousands of times before.

 

[ronblack]

I have come across the view that using indicators in analysis and different strategies is a meaningless activity, due to the fact they present what you already know but just in a different way. e.g applying a formula in order to get an indicator is just giving you a manipulation of data you already have. Does the indicator have any significance?

I think the essence of what I'm asking is, do indicators just present data you know just in a different way? And if it is just manipulated data does it have any significance in analysis?

Maybe true but use of indicators in mechanical systems enforces discipline and that is even more important than the information they convey.

Try to understand the significance of this point.

Ron

 

[unilever03]

dcraig1 - I haven't dismissed indicators whatsoever, I am merely asking for peoples views on how useful they are and whether they agree with the initial statement. Read the post again.

ronblack - I find your point very interesting, and think I can see where you are coming from.
rhodytrader - thanks for your response agree that one needs to understand what the indicators are telling you before they can be used effectively.

 

[Rhody Trader]

Not all "indicators" are derived from price/volume eg market internals, breadth, market delta etc etc. How about the order flow ?

True enough, but you're still creating a degree of seperation (so to speak) from the base data. I'm not saying this is bad. I'm just saying you need to realize the implications.

 

[Rhody Trader]

Maybe true but use of indicators in mechanical systems enforces discipline and that is even more important than the information they convey.

Try to understand the significance of this point.

It's the system which enforces discipline, not the indicators. The indicators are merely inputs into the system.

 

[ceydababy]

I have come across the view that using indicators in analysis and different strategies is a meaningless activity, due to the fact they present what you already know but just in a different way. e.g applying a formula in order to get an indicator is just giving you a manipulation of data you already have. Does the indicator have any significance?

I think the essence of what I'm asking is, do indicators just present data you know just in a different way? And if it is just manipulated data does it have any significance in analysis?

There are certain ways indicators can be used as a pre emptive tool.

 

[pedro01]

I have come across the view that using indicators in analysis and different strategies is a meaningless activity, due to the fact they present what you already know but just in a different way. e.g applying a formula in order to get an indicator is just giving you a manipulation of data you already have. Does the indicator have any significance?

I think the essence of what I'm asking is, do indicators just present data you know just in a different way? And if it is just manipulated data does it have any significance in analysis?

I think this point of view is absurd.

Take a simple moving average. This is an indicator but it in no way conveys information you already know unless you can work out the average price by looking at a chart.

This view is like saying you don't need to do a P&L statement for a company because you have the general ledger. Of course the general ledger contains all the information you need to know but I personally can't read through a few hundred thousand GL postings and I find it much easier to read a profit & loss statement.

Capiche ?

 

[rols]

I think this point of view is absurd.

Take a simple moving average. This is an indicator but it in no way conveys information you already know unless you can work out the average price by looking at a chart.

This view is like saying you don't need to do a P&L statement for a company because you have the general ledger. Of course the general ledger contains all the information you need to know but I personally can't read through a few hundred thousand GL postings and I find it much easier to read a profit & loss statement.

Capiche ?

Quite correct

Indicators indicate something that is already known, they are not a magic divination wand which can predict the next turn in the market - YET it seems the majority believe this to be true because they seem to conveniently forget about the times when the indicator is incorrect in predicting price moves.

Indicators are a tool. Tools in the hands of the ignorant can be dangerous. This is why I still have 2 arms and avoid power tools at all costs.

Layering one indicator on top of another is equal to placing one piece of crap onto another piece of crap. Do it enough times and you end up with nothing more than a pile of useless crap. (Clumsy metaphor but it bluntly makes the point)

 

[zupcon]

Indicators indicate something that is already known, they are not a magic divination wand which can predict the next turn in the market - YET it seems the majority believe this to be true because they seem to conveniently forget about the times when the indicator is incorrect in predicting price moves.

Im really NOT convinced that the majority believe that indicators are predictive. I have yet to meet a single person who believed that to be the case.

The only people who ever mention the predictive power of indicators are forum contributors who are generally arguing AGAINST the use of indicators. Its just an over used straw man argument by mischief makers and vendors.

 

[rols]

Its just an over used straw man argument by mischief makers and vendors.

How about agent provocateurs?

 

[bbmac]

No doubt that Price is the purest indicator of all. In an interbank market like fx where no official exchange figures are available for volume, indicators are arguably more useful than in some others. With the growth of tech anlysis as pc processing power has grown over the last 20years, it can also be argued that indicators are to some extent self fulfilling.

I think there are 2 important responses to the question/statement posed in a thread like this;

a. Don't mistake other's failure to use a tool to their profitable advantage as an indication of it's absolute usefulness or not.

b. Indicators providejust that...an indication that something may happen based on historical evidence. It is the confluence of a repeating pattern/set-up combined with other technical phenomena that increases the probability of any trading edge derived/based upon indicator use.

 

[zupcon]

How about agent provocateurs?

I thought they just sold womens lingerie, but you never know who's got a hidden adgenda these days