What indicators do you look for most?

[NH538DB8]

I've been in and out of the markets for a number of years since I was in high school. I'm finally at the point in my life where I've got some real cash I can try intelligently investing (not gambling). I've been doing heavy research for some time and two questions keep coming up.

How do you tell what is a swing from a full blown reversal.

What indicators do you rely on for your entry strategy and why? There are a million theories out there but so far they all seem to be a bit wishy washy in the why area?

 

[Fugazsy]

I've been in and out of the markets for a number of years since I was in high school. I'm finally at the point in my life where I've got some real cash I can try intelligently investing (not gambling). I've been doing heavy research for some time and two questions keep coming up.

How do you tell what is a swing from a full blown reversal.

What indicators do you rely on for your entry strategy and why? There are a million theories out there but so far they all seem to be a bit wishy washy in the why area?

a)I do not think you can tell for certainty, but you can follow clues or prints, PA will help you with that by the nature of the moves itself by comparing momentum in swings and by comparing projection and depths of the relative extensions, still there is not guarantee because at any time anyone can dump on you as much to make your reading of technicality just an attempt and nothing more. Still reading properly is a good edge.

b) None.....clearly.

 

[tomorton]

I don't think there's an adequate answer. Choice of indicators will vary according to your strategy but they all suffer from lagging data, always behind the price action. That's why they can't predict - only price can tell you which is a swing and which is a reversal, but only after it has happened (and most indicators don't even do that).

So if there are no really good indicators, using a bunch of them will not make them work better. I've got to suggests using as few as possible and keeping charts clean as possible to help quick and objective decisions. I use 3 EMAs to identify my long or short set-up (trend-following): entry is then based on price action patterns (though an entry pattern I sometimes use is based on new close back on the 'right' side of a much shorter-term MA).

 

[timsk]

Hi NH538DB8,

. . .How do you tell what is a swing from a full blown reversal.

As with so many questions of this kind, the answer lies with the definition of each individual trader based on their own research. What you term a pull back - I might term a reversal and vice versa. These are all just words which can mean whatever we want them to mean. What matters is that you are able to determine one from the other in a way that makes sense to you, fits with your views and beliefs about the way the markets function and enables you to make trading decisions in a timely and consistent fashion.

For what it's worth, personally, my assumption is that the prevailing trend will continue unless and until there is a clear indication of a reversal. Therefore, all counter-trend moves are merely pull backs in my book until a reversal has taken place. For this to occur, I need to see the following (in an uptrend): a lower swing high followed by a breach of the previous swing low. (Think of the right hand 'shoulder' of a head and shoulders pattern.) When that occurs, the trend has reversed from up to down.

. . .What indicators do you rely on for your entry strategy and why? There are a million theories out there but so far they all seem to be a bit wishy washy in the why area?

This is a personal choice, obviously. Personally, I'd be wary of using indicators as the primary tool for making entry decisions. I think they can be useful for 'indicating' what price is doing - or might do - which (some traders) can't always see just by looking at price alone. But it is only an indication! So, I suggest you seek confirmation from elsewhere and, if possible, use price action as your means for entering and exiting trades. If you've not seen it already, this Sticky has additional info' on indicators that might be of interest to you: Essentials Of Technical Analysis. If you don't want to read the whole thing, scrol down to this heading: 'Indicators and the Mechanics of TA'.
Tim.

 

[alexaherself]

How do you tell what is a swing from a full blown reversal.

I can't possibly add anything helpful to Timsk's answer to this question, just above. I totally endorse both paragraphs of it, which completely encapsulate (but much more neatly and usefully than I'd have managed) the points I wanted to make. It's subjective, but my perspective is apparently exactly the same as Timsk's.

What indicators do you rely on for your entry strategy and why?

None.

Because over all the years I've been trading, I've gradually and consistently done a little better and been a little more consistent by giving them up, and I now trade more or less without them at all. With some relief and much steadier income.

I find "patterns of bars" - and especially their highs and lows, rather than their closes which are essentially arbitrary - and their relationship and position relative to the lines/areas of support and resistance I've sometimes drawn on my charts, far more productive and insightful, for entries.

In any case, "entries" are a pretty minor issue, in terms of achieving stready profitability with trading. Position-sizing, money-management, exits, stops and their movements, and all the psychological aspects of trading are far more important, in my opinion, than entries. For what it's worth, if anything, it took me many years gradually to learn this, and if someone had said it to me when I started, it probably wouldn't have meant very much to me, but I can't help that.

There's nothing wrong with having a moving average on your charts, to remind you of the recent trend, and nothing wrong with looking at it on a higher/slower periodicity of chart as well, to "see the bigger picture", but even there, the levels of support and resistance are far more significant. To me. I still sometimes have a 20-period or 30-period MA on a chart, while I'm trading. Maybe one day I'll get rid of even that.

"Just my perspective". :|

 

[NH538DB8]

I can't possibly add anything helpful to Timsk's answer to this question, just above. I totally endorse both paragraphs of it, which completely encapsulate (but much more neatly and usefully than I'd have managed) the points I wanted to make. It's subjective, but my perspective is apparently exactly the same as Timsk's.



None.

Because over all the years I've been trading, I've gradually and consistently done a little better and been a little more consistent by giving them up, and I now trade more or less without them at all. With some relief and much steadier income.

I find "patterns of bars" - and especially their highs and lows, rather than their closes which are essentially arbitrary - and their relationship and position relative to the lines/areas of support and resistance I've sometimes drawn on my charts, far more productive and insightful, for entries.

In any case, "entries" are a pretty minor issue, in terms of achieving stready profitability with trading. Position-sizing, money-management, exits, stops and their movements, and all the psychological aspects of trading are far more important, in my opinion, than entries. For what it's worth, if anything, it took me many years gradually to learn this, and if someone had said it to me when I started, it probably wouldn't have meant very much to me, but I can't help that.

There's nothing wrong with having a moving average on your charts, to remind you of the recent trend, and nothing wrong with looking at it on a higher/slower periodicity of chart as well, to "see the bigger picture", but even there, the levels of support and resistance are far more significant. To me. I still sometimes have a 20-period or 30-period MA on a chart, while I'm trading. Maybe one day I'll get rid of even that.

"Just my perspective". :|

Thanks everyone for your input. After reading my original post I really did a disservice and allowed it to be another generic "how do I do blah" post.

I know there is no magical single or combination of indicators that makes something go up. But there has to be a way to sort through the thousands of equities to find those most closely fitting to your criteria for entry.

Alexa, you mentioned that you trade off the price pattern alone and that is a skill that you've honed over years of trading and watching. With that in mind, are there some basic patterns that you can highlight to research further into?

Timsk, just want you to know that I'm looking through the Trading Plan Template you have in your sig. More structure is never a bad thing.

 

[5%Luck]

I like to apply a short term standard deviation using the h/l over the course of a few weeks and apply it as a percentile(lining up the columns so as to effect the ones likely to change) to the average price either up or down and if the h/l is outside of this bracket by an amount greater then I anticipate then I consider that a break out from the pattern either up or down. At that point I consider there will be a reversal towards the other end of the std-D -news not withstanding- or a break to a new range.

I also collect trend data via the h/l over the same time frame and submit to strengthening and weakening trends as a further analysis.

 

[Forexmospherian]

I can't possibly add anything helpful to Timsk's answer to this question, just above.

.......................................



In any case, "entries" are a pretty minor issue, in terms of achieving stready profitability with trading. Position-sizing, money-management, exits, stops and their movements, and all the psychological aspects of trading are far more important, in my opinion, than entries. For what it's worth, if anything, it took me many years gradually to learn this, and if someone had said it to me when I started, it probably wouldn't have meant very much to me, but I can't help that.



"Just my perspective". :|

Amazing

It took my a few years to find totally the opposite

Entries are absolute key for me Intraday

Even if I get a direction wrong - I normally can still get out with a profit and maybe even a RR of 1 ;-)

Still we are all different - and as long as we make money - and I don't mean just 50% per annum on retail size accounts - then any way which is consistent with low drawdown etc is still OK

Good Trading


Regards


F

 

[alexaherself]

It took my a few years to find totally the opposite

Entries are absolute key for me Intraday

As I said, it's subjective, then! (I also trade intraday only, now.)

Even if I get a direction wrong - I normally can still get out with a profit

Yes indeed. So do I. And to me that's evidence of the relative unimportance of entries in the overall scheme of things.

Alexa, you mentioned that you trade off the price pattern alone and that is a skill that you've honed over years of trading and watching. With that in mind, are there some basic patterns that you can highlight to research further into?

Perhaps ...

I would look into things like this ...

(i) "Mother bars" and "inside bars"
(ii) Breakouts of consolidation and congestion
(iii) Breakouts of support and resistance (the thread linked to in my signature-file references a fairly steadily profitable method which - with only the refinements mentioned in the thread's initial post - has had only two very minor losing months out of the last twelve months)
(iv) 1-2-3 formations (let me know if you want a link to an online explanation)
(v) "Pin bars"
(vi) Series of higher/lower highs/lows
(vii) "Ross hooks"
(viii) Series of bars each of whose close is higher than the high (or lower than the low) of their antepenultimate predecessors (sometimes the beginning of a very substantial and/or dramatic trend)

Let me know, also, if a few book-recommendations would help.

Glad that you've discovered the template in Timsk's signature!

 

[NH538DB8]

Alexa, book recommendations are always good. I'm hungry to learn as much as I can at this point. I've been going back through some charts practicing some of the patterns you mentioned. One that caught my attention was pin bars. I'd like your opinion on if I'm interpreting things correctly for one chart specifically (as confirmation that I understand the concept) if you don't mind. Also any notes other than the highlighted pin bar area would be greatly appreciated.

http://stockcharts.com/h-sc/ui?s=PGH&p=D&yr=0&mn=6&dy=0&id=p00787360719&a=402485883

Thanks

 

[timsk]

Hi NH538DB8,

. . . I know there is no magical single or combination of indicators that makes something go up. But there has to be a way to sort through the thousands of equities to find those most closely fitting to your criteria for entry.

There are pros and cons for trading any market and one of the cons with equities is that there are so damn many of them and finding the ones that fit your criteria for entry at the right time can be the devil's own job. The flip side to that coin is that one of their pros is that there are so damn many of them and that there's nearly always one that fits your criteria for entry at the right time! Needless to say, the starting point is having a criteria for entry. Once you have that, you know what your looking for and finding it becomes easier. Given your questions to Alexa, my guess is that you're not at that stage yet. As and when you are, there are lots of people with equities experience who will help you filter suitable candidates to trade.

. . .Timsk, just want you to know that I'm looking through the Trading Plan Template you have in your sig. More structure is never a bad thing.

It's a little old now and needs updating, but most of the key points are still valid. If you want clarification or help with anything - just ask.

Regarding the question about indicators in your opening post, I deliberately didn't say what I use as the very last thing I want is for you to think 'if timsk uses XYZ - he's been around a long time and must know what he's doing - so I'll use what he uses'. That's the danger when anyone gives the sort of answer I imagine you're looking for. On the other hand, I quite see it's rather annoying when people don't answer the question directly and fob you off with generalities like I did in my last post! So, I've attached my chart set up. There are two indicators: regression analysis (overlaid on the chart) and the OsMa in the separate window below. I use the former as part of my set up to indicate areas where I might want to enter if price reverses. In theory (and theory isn't the same as practice) it will help to ensure I don't buy when price is overbought or sell when it's oversold. As far as I know, I'm the only person with the dubious distinction ever to have bought a stock (in the days I day traded U.S. equities) at the exact high of the day and to be duly stopped out for a loss and then, later on the same day, to sell the same stock at the exact low of the day - and to be duly stopped out for a loss. That takes talent! I have a history of doing this sort of thing and the regression channel helps to prevent me from repeating it. The OsMA is similar to MACD and I really only use it to highlight divergence which is harder to spot on a Renko chart than it is on a conventional candlestick chart. The important point is that these indicators are no better or worse than countless others and, just because I use them, it doesn't necessarily mean that they'll be of any use to you at all. Find what works for you and, as others have said, if you can do without indicators altogether, that's no bad thing. No bad thing at all.
Tim.

 

[NH538DB8]

Tim, I understand and agree with your logic completely. I'd like to say that I've fully moved past the point where seeing someone else's strategy doesn't make me want to jump in the deep end and try it, but I'm still tempted. Tempted but not doing so. And your right about the pros and cons of equities. Part of what makes it so difficult.

I'll keep working on that template and reading for now (Including your strategy). Hopefully in a week or two I'll have enough of a plan that I can make a trade or two. We'll see though. I certainly don't want to jump the gun and throw away my initial investment like I have done before.

Thank you all for the advice and guidance. Its greatly appreciated. After I make my first million with dirt cheap penny stocks I'll share it with all of you.

 

[timsk]

Hi NH538DB8,

. . .Hopefully in a week or two I'll have enough of a plan that I can make a trade or two . . .

Trading paper money on a demo account, I hope? If you're of the school of thought that trading demo is a complete waste of time, be sure to trade the smallest size possible, (i.e. the minimum amount your broker will allow) and be prepared to blow up your account!

. . . . After I make my first million with dirt cheap penny stocks I'll share it with all of you.

Hopefully, that's a joke - about trading penny stocks I mean? If not, rather than being prepared to blow up - expect to blow up! In the 10+ years I've been on T2W, I've never even heard of anyone making good profits on a consistent basis trading penny stocks - let alone know of anyone doing it! If you go down that road (not advised), note that a TA based strategy will almost certainly fail. You'll need good fundamental info' from people on the inside track who you respect and trust - otherwise you're effectively just taking wild punts.

Good luck - and please update us with your progress.
Tim.

 

[NH538DB8]

Hi NH538DB8,

Trading paper money on a demo account, I hope? If you're of the school of thought that trading demo is a complete waste of time, be sure to trade the smallest size possible, (i.e. the minimum amount your broker will allow) and be prepared to blow up your account!


Hopefully, that's a joke - about trading penny stocks I mean? If not, rather than being prepared to blow up - expect to blow up! In the 10+ years I've been on T2W, I've never even heard of anyone making good profits on a consistent basis trading penny stocks - let alone know of anyone doing it! If you go down that road (not advised), note that a TA based strategy will almost certainly fail. You'll need good fundamental info' from people on the inside track who you respect and trust - otherwise you're effectively just taking wild punts.

Good luck - and please update us with your progress.
Tim.

I plan on having a basic strategy hashed out (read very basic) and start paper trading on it tomorrow as well as back testing. so Maybe in a week or two I'll feel comfortable with a small $ trade.

As for the second comment, yes I was kidding. Playing off the get rich quick marketing that is out there.

 

[davidwebbthegreat]

Average daily range, really, remember indicators do not predict the future they only show what has happened so useless really.

 

[timsk]

Average daily range, really, remember indicators do not predict the future they only show what has happened so useless really.

Hi David,
As you've stated in other posts that you're new to trading - please allow me to offer a small tip that will stand you in good stead along your journey. . .

Don't make assumptions based on logic or accept blindly what you read - regardless of the source. You have to test everything for yourself and arrive at your own conclusions. Your statement above is absolutely fine if you've tested all indicators and found that for you personally none of them offer any predictive qualities. By the same token, if you're only interested in indicators that predict and nothing else then, based on said research, you can conclude they're all useless. Unless and until you've done that, I recommend you keep an open mind, especially as some indicators are classed as predictive. And, as I say, just because you might conclude all indicators are useless, it doesn't mean that all other traders will reach the same conclusion. Indeed, I can assure you they won't - and don't!

Tim.

 

[jonisonvespa]

Hi David,
As you've stated in other posts that you're new to trading - please allow me to offer a small tip that will stand you in good stead along your journey. . .

Don't make assumptions based on logic or accept blindly what you read - regardless of the source. You have to test everything for yourself and arrive at your own conclusions. Your statement above is absolutely fine if you've tested all indicators and found that for you personally none of them offer any predictive qualities. By the same token, if you're only interested in indicators that predict and nothing else then, based on said research, you can conclude they're all useless. Unless and until you've done that, I recommend you keep an open mind, especially as some indicators are classed as predictive. And, as I say, just because you might conclude all indicators are useless, it doesn't mean that all other traders will reach the same conclusion. Indeed, I can assure you they won't - and don't!

Tim.

Hi Tim
what indiarers predict the future then? I am being polite I do mean it
Thank you

 

[Pat Riley]

The best indicator is when you have client X indicating willingness to sell at 100 and client Y indicating a willingness to buy at 101, and both in unlimited size if ya want icing on it.

 

[timsk]

Hi Tim
what indiarers predict the future then?

Hi jonisonvespa,
In general terms, indicators fall into two main groups: leading and lagging. The former work best in range bound markets and the latter work best in trending markets. Examples of lagging indicators are things like moving averages and MACD. By contrast, many oscillators are classed as leading indicators because they indicate when a market is overbought or oversold, enabling traders to 'predict' what it is likely to do next. Well know examples are stochastics and RSI. Potentially, they offer greater rewards, but that comes at the expense of increased risk. For example, in a market that's trending strongly (upwards), leading indicators will generate overbought signals, tempting traders to exit long positions prematurely and/or to enter short positions in an attempt to catch the market near its high.

One indicator that sort of bridges the gap between leading and lagging is Bollinger bands. Lots of traders regard price breaching the upper band as an indication that it's overbought and look to close their longs and/or to go short, while John Bollinger himself recommended 'riding the bands' and considered the breach of the upper band as an indication of a strong trend.

All the above is just standard text book stuff which I'm pretty much quoting from Steven B. Achelis' highly regarded book Technical Analysis from A to Z. IMO, it isn't of much help or interest to individual traders. As per my post to David, what matters is that each trader does their own research to find what indicators - if any - 'work' (whatever work means for them) and whether or not they offer any predictive qualities. Needless to say, what works for one trader may not work for the next.
Tim.

 

[Pat Riley]

timsk, all indicators are lagging in that they can only ever work on data that is already in the market domain. The 'predictive' bit is purely and only ever in traders' heads. Your example about OB/OS is a case in point. One trader will likely sell or go short as soon as it hits OB while another will wait for it to fall below a lower level 'for confirmation' before selling. They both will be working with the exact same data. And they can both just as easily be wrong. Stuff can stay OB for a long, long time and switch back up to OB just after hitting a lower level on any of the oscillator indicators. There is a fascination with indicators out of all proportion to their actual worth. They can, sometimes, provide a useful general guide, but to be timing entries and exits on them alone is folly in my view.