When Indicators Fail

[Duffman316]

Looking for some sources on when technical indicators fail or which specific ones fail under what circumstances

anyone know of any such sources?

 

[Joules MM1]

...maybe the question is an advantage if asked 'how' does an indicator fail......in the same way, how does a pattern fail, how do lines on a chart fail......indicators do not fail, patterns don't fail, lines don't fail.....comedians fail to tell good jokes and chartists fail to understand context of a signal from an indicator.....truth is, the mere study of an indicator, most often, causes a trader to fail in seeing the message in the active price......

the circumstance where an indicator fails is the circumstance where you are observing it.....kinda like the quantum jibba jabba of trading....observe and you shall fail.....



....in the nicest possible way

 

[Joules MM1]

Looking for some sources on when technical indicators fail or which specific ones fail under what circumstances

anyone know of any such sources?

there are obvious exceptions, such as, indicia that is designed for a specific signal, like a volume cone indicator, a prop signal, however, it needs it's own specific set-up as a confirmative signal off volume and not price extremes, this is an exception in that the creator has asked for a paradigm that applies to levels of activity, again, requiring context in specific traffic, utterly useless during lunch, best at opens and closes or news set-ups where you might see a sudden build in buy-side activity but not pushing the offer, again, you still want to interpret who's on the bid and who's likely to be on the offer.......can you imagine an RSI or stochastic of any use in a news release.......haha......how about the open? what about the CCI giving you the......oh, never mind......

coffee

 

[bbmac]

Whatever analysis you use to gain a trading edge and therby determine whether to enter a market or not - it can only tell you what the probability of future price movement is (whether or not that probability plays out or not on that particular occassion) based on it's historical precedent. Therefore depending on the historical strike rate of the analysis that makes up your trading edge (assuming the analysis actually gives you an edge) - some trades as a result of it will fail-ie result in a losing trade, it is - this is the nature of things. This includes any analysis/edge you derive from using tech indicators.

If a trade fails how so/why so ever you entered the market, it is for one of the following reasons.

a. The edge was present but on this occassion it resulted in a losing trade
b. The edge was not present and the trader lost his discipline/patience and entered when it's conditions were not present/all present.
c. The analysis used to gain the edge is flawed and no actual edge is present over a large sample.

G/L

 

[bbmac]

Further to the above post and specific to Technical indicators and the OP's 1st post...Tech Indicators give an 'indication' ie they are not absolute (if only ! lol,) How can they be ? - there are so many of them avialable for use on so many market/instruments/time frames and on a myriad of settings.

Take overbought or oversold readings on an oscillator for example - these will likely ' fail ' in a strongly trending market in this context as the nature of a trend is that price is overbought - trending up, or oversold - trending down. Similarly trend indicators like ADX will likely ' fail 'if the overall market is in a classic overall price ranging mode.

Let price be your guide - and use tech indicators to confirm (or not) PA not the other way around.

G/L

 

[darktrade]

Looking for some sources on when technical indicators fail or which specific ones fail under what circumstances

anyone know of any such sources?

Some are OK, some are worse and some are really bad. I got burned in the past using them. Which ones are you using? Just be very careful. Some of these indicators behave like casino slot machines.

 

[Duffman316]

Some are OK, some are worse and some are really bad. I got burned in the past using them. Which ones are you using? Just be very careful. Some of these indicators behave like casino slot machines.

i'm currently using adx with moving averages

in particular i was interested in whipsaws