What indicators do you deem essential?

[daytradingUK]

This is not for my use or about systems you use but an attempt to determine what indicators people use.
Please post any indicator you have used more than once and list as many as you feel you must have access to / why you use it.

If this has been covered already then I apologise but I am very interested in how people settle on a group of favoured indicators. I personally use a few indicators but have tried to move more into the price action domain...

Indicators I have used / tried at some stage:
MACD
SMA
EMA
DEMA
Slow Stochastics
StochRSI
RSI
Detrended Price Oscillator
Bollinger Bands and BWI
ADX / DMI
Money Flow Index
Williams %R
Average True Range
Aroon Oscillator
CCI

Cheers
Dico

 

[Trdr]

Fibonacci Price Levels (Retracement) tool

 

[Pat494]

Hi daytradingUK,
Not meaning to hijack your thread or anything but perhaps one could give a brief summary why one did/didn't like the indicator.
For instance Neural networks - I have wasted a huge amount of hours and quite a bit of dosh on these. They promise a lot, look good but dont quite deliver the profits one thinks they ought to and might.

 

[trendie]

To answer the question:
MAs. ( trend-identifier )
Stochastics. (identify pullbacks, OB/OS to main trend )
Candlestick patterns. (early warning of possible change of direction, eg, Ross-123, )

The following may be tangential to your thread, but the link has proved to be useful to me. Has helped me to understand that having too many indicators is a sort of comfort-blanket.

Strictly speaking, you need not have more than 3 indicators in total, one each for Trend, Momentum, and Volume. Any more, and you're just seeing the same thing in a different format.

"Multicollinearity is a statistical term for a problem that is common in technical analysis. That is, when one unknowingly uses the same type of information more than once. Analysts need to be careful and not utilize technical indicators that reveal the same type of information. "

http://stockcharts.com/education/TradingStrategies/Multicollinearity.html

 

[Nut]

Tom DeMark's Indicators

If you are trying to move into the area of price action then take a look at DeMarks work. I use his buy/sell signals in the Forex market and they seem to work quite well. Their is no reason why they should not work in other markets.

He also has a large number of his own indicators on the market but these are only available in certain packages. I use his TD Range Expansion Index (TD REI) with a high degree of success.

If you buy any of his books then be advised that in my opinion they are not easy reading, study is required, you must extract the methods yourself. He does not give formulas for any of his indicators.

That said it works for me. I use the following charts 30min, 5min, 1min to generate signals, each chart displays a 5 period TD REI.

DeMarks theory on indicators is that it is not only the overbought/sold levels reached that is important but the amount of time spent overbought/sold is crucial and the most important of the two factors.

Recently the Currency Trader magazine has written some interesting articles on his work, it was these articles that raised my interest in his methods.


Cheers

 

[PurplePerson]

I second what trendie says above regarding the need to avoid accidentally using what might be called 'incestuous' indicators. Indicators too closely related to do anything but agree.

I use candlestick charts, moving average crossovers, rsi, and sometimes volume. Sometimes support and resistance levels.

Linda Bradford Rashke sometimes makes the point that everything you need to know is there in a simple bar chart, and that - eventually - you can train yourself to see it. Indicators merely assist by pulling some of it to the fore, and are useful in that way, but should be regarded as providing temporary assistance until you can manage without.

I did pretty well before ever learning about any indicators. Then I studied dozens of them, and tried them out. And eventually discarded all but the handful that suit me. The fewer I can use the happier I am.

The danger in applying too many (say a dozen or more) is that you can always find 3 that will appear to confirm whatever it is you want confirmed!


PP

PS: Another point made by LBR, is that if something isn't obvious from looking at the chart, it probably isn't there! So don't try and force yerself into seeing things.

 

[daytradingUK]

Good points well made lads, I should point out I never used more than two indicators + volume at once and so never really suffered analysis paralysis because of it. Yes multicolinearity is a major problem when you first start but I have managed to avoid it so far.

Cheers for the replies I just find TA so fascinating.

Personally I am a candlestick man with volume and a bit of support and resistance work now.

 

[damianoakley]

For me, I don't like to get lost in indicators and so use as few as possible.

Price and volume are the 2 best indicators (in my opinion), but I also use Accumulation/Distribution.

Many people fall into the trap of just focusing on the indicators and forgetting what the actual price is doing!


Good Luck,

Damian

 

[AlexBB]

I am sure that there is a tendency to 'select' those indicators where you agree where the market is going and refject those indicators which tell you something else. I'm a newbie and trying to learn and my view to get around this is to select only, say, 3 indicators and ignore all other indicators and only trade when those three indicators are in agreement.

 

[damianoakley]

Hi AlexBB,

You're absolutely right - it is human nature to want to be right.

Sometimes when a trader wants to believe that the market will move in a certain direction, he or she will apply lots of different indicators to a chart and concentrate on those indicators that support their opinion of the market.

The problem with indicators is that there will always be at least one indicator that can support any view of the market, and this is where a trader must be cautious and disciplined.

If you do as you say above and select a few indicators that all need to align before you make a trade, then you need to be sure that you have the patience to wait for these indictors to align. Many new traders don't have this patience and end up making a poor trade fuelled by their desire for some action.

Good Luck

Damian

 

[trendie]

Just come off a webinar from esignal, and the presenter made a very good analogy.

He (Ron Wheeler) said indicators are like torturing the chart.
The more you put on, the more the chart feels pain.
And, soon enough, the chart will show you what you want to see.
But, what is being shown, will not be the truth, only what you want to see, because you forced it.

So, back off with too many indicators!!

 

[damianoakley]

Hi trendie,

Very well said in my opinion - perfectly and elequently put.


Damian

 

[Eagles soar]

Here is my secret indicator

 

[daytradingUK]

I like your 'indicator' Eagles, if only all my charts gave that 'signal' when I went long I would own a few office blocks by now!

 

[Eagles soar]

I like your 'indicator' Eagles, if only all my charts gave that 'signal' when I went long I would own a few office blocks by now!

Nothing magical about indicators IMO. I think the more people use them the more confusion is added to the chart. Sometimes the simple answer is right in front of us...

 

[AlexBB]

Thanks for your support. Right now my challenge is to establish some sort of trading methodology. I suppose i will employ moving averages and another indicator.
I am looking for some kind of computer program which will search a 'universe' of stocks and select those for me which are close to MA crossover points. Can you recommend any software which is able to do this ?

Thank you very much
AlexBB

 

[damianoakley]

Hi AlexBB,

You could try www.stockcharts.com

They have free stock scans where you can search the entire U.S. stock market for certain patterns and indicator alerts.

If you want something a bit more advanced or reliable, feel free to send me a personal email for a chat.

Good Luck

Damian

 

[andycan]

A charts is a bit like a language you have to learn to read it and interpret what its telling you.
To know the future you first must understand the past, may sound corny but think about it we all trade based on a chart pattern a signal of sorts a reason, why? because it has happened in the past
take Eagles soar no indicators, just plain and simple break out system
(im sure he also explores the fundamentals of the company which is a lot more involved)
but basically when a chart is congested or sideways the longer it is in that state the more powerful the move usually!!
im sure this has worked for him time and time again
many use indicators though i totally agree with trendy,KISS should be applied
im not a great fan of MA so be aware, many black box systems use a version of MA large institutions etc they can afford to have huge draw downs so think carefully before you make MA's your priority

 

[Xandar]

I see 3 kind of action:
1. Ample movement with wide trading and cursive price acceleration. (Use 2xMA's, MACD, and if is a fat and slow stock RSI instead of MACD)
2. Sketchy an no direction stock which match price patterns.
3. Support and Resistance for "blind" 2 way possible direction combined with bar OHLC analyses.

 

[Eagles soar]

A charts is a bit like a language you have to learn to read it and interpret what its telling you.
To know the future you first must understand the past, may sound corny but think about it we all trade based on a chart pattern a signal of sorts a reason, why? because it has happened in the past
take Eagles soar no indicators, just plain and simple break out system
(im sure he also explores the fundamentals of the company which is a lot more involved)
but basically when a chart is congested or sideways the longer it is in that state the more powerful the move usually!!
im sure this has worked for him time and time again
many use indicators though i totally agree with trendy,KISS should be applied
im not a great fan of MA so be aware, many black box systems use a version of MA large institutions etc they can afford to have huge draw downs so think carefully before you make MA's your priority

Andycan, I only look at charts. I often could not even tell you the name of the company let alone any fundamentals of it. I agree on the KISS theory and often we make things more difficult then they need to be. I'm not a break out trader and I try to stay away from them. I like pull backs after a break out. This way I can gauge how things have been going. Does it always work absolutely not.