Do indicators work?

Discussion in 'Strategy Building' started by links, Mar 23, 2003.

  1. links

    links Guest

    When I started trading a while back, like most people starting out I first looked at and build strategies using moving averages, simple , exponential, crossover etc. Then after several years moved on to MACD, which I think is much superior to ma systems. I finally settled on simple range breakout systems. In all my backtesting w/ multiyear data, simple range breakout systems consistently beat other strategies which utilize indicators.

    I also believe entry although important, only plays a small role in the success of a system. Other parts like deciding which mkt to trade, what timeframe to trade (2 min, 5 min, 15 min etc), how many contracts/shares to trade, exits(very important imo), stop loss etc play a much greater role.

    I am not attacking the validity of indicators just sharing that they haven't work for me ( maybe I am doing something worg).

    Wondering what indicators do others use to build their trading systems? Also how do put together your strategy, what are some of the components?

  2. indicators are just an easier way to visualize what price is doing. they are not magic. i believe that for an entry indicator to work well it has to have a following. by that i mean enough people have to be watching that indicator and acting on it to make it useful.
  3. Besides the responses you get here, there is a ton of stuff written already regarding your questions. If you haven't already, try the SEARCH function.
  4. I rank, in order of importance, the following facets of making money:

    1. Market selection,
    2. Small universe in equities markets and only trading a single or very closely related commodities,
    3. Optimum trading frequency (fractal)
    4. Market pace
    5. Volume
    6. Price formations
    7. Protection
    8. Signal sequences
    9. Indicator signals
    10. Indicator formations

    I rank indicators in the following categories from most powerful to least powerful:

    Earnings and strength
    Price/volume combination indicators.
    B of P type
    capitalization related
    trend related

    All default values have to be contemporary.

    1. All pre PC defaults have to be corrected.
    2. If possible indicators should be converted from relative to absolute
    3. indicators are best made into vectors
    4. indicators should be modified (in interpertation) to get signals that are leading instead of lagging.

    Stand alone indicators ar the least effective for making money.

    The most effective strategies use a minimum set of components that will, in their sequence of signals, accurately yield, in advance, all flaws related to the possible continuation and rate of the contemporary money velocity under way.

    To optimize performance, the only focus required is to iteratively refine signal sequence quality. This is the only place the rubber meets the road. Given observable sequences, decision making is derived from positive corroberation of signals and negative assessments of flaws that intervene, concurrently, risk is not a static pre-trade possible assertainment and must be continually handled with dynamic ongoing prescription related only to the market and not capital, action is always in response to the dynamic market condition which is defined continually. There is, as a consequence, almost no time in which money cannot be made as related to the required periodicity of assessment.

    Any thing that is not understood, requires, as a consequence, limiting the application of capital that is at risk in the market. The first assessment of a trader is how much capital they allow themselves to risk. If they risk , then they appreciate capital at a resultant rate of return. If a person is a looser,then they do not understand the minimum to be able to trade. If an algorithm reaches a steady state money velocity, then it's utility limits the application of capital (saturation of the market vis a vis the algorithm). Because application of capital is in discrete amounts ictated by share amounts and contract amounts, there are breakpoints over time in the ever increasing ROI.
  5. links,

    I think you're right. I never could come up with an indicator-based system that worked over time. Pattern-based system do work.
  6. lindq


    I swing trade an extremely profitable system based solely on daily MAs and intraday price levels. So I believe it is a generalization to say that technical indicators aren't useful.
  7. dbphoenix


    That's primarily because indicators lag. If you depend on them, you're always behind.

  8. lindq


    Not if you relate current price (high,low,open or close) to indicators. That's the key. People often get into difficulty when they try to use the indicators themselves for trading signals.
  10. Is your system posted somewhere ?
    #10     Mar 24, 2003