In summation...

Discussion in 'Trading' started by Corey, Aug 1, 2008.

  1. Corey


    i read these forums every day for a couple minutes, trying to wade through the crap to find the gems. After two years of investing and trading, I think I am finally able to sum up all of my learning into two sentences. I wanted your thoughts...

    Indicators, from simple to complex, transform price and volume into windows for examining market conditions and describing the current market environment. The signals from these indicators, in conjunction, give you a description of the current environment, a statistical confidence for the profitability of a given trade, and an expectation for what should occur, allowing you to minimize risk.

    I think all the complexity of trading, all the arguing about indicators, can be boiled down to that statement. Find a set of indicators that complement each other, as well as your trading style and time frame, and fully describe the market environment. Then learn how the signals from each indicator either confirm or deny the signals from another. Together, they will allow you to determine whether a given trade has a high profitability -- and even more importantly, determine how price should act. If it doesn't act that way, it is a good signal that something is wrong.

    It doesn't have to be complex. I personally use only ~5 signals: (psychological / price) support / resistance levels (to determine whether I have 'room to run'), price action (to determine if we are making higher highs or lower lows), dynamic trend lines (to describe how price SHOULD be acting and when to get out), momentum (for choosing which stocks to play), and accumulation / distribution (to determine if there are any buy/sell pressure divergences).

    I find that these indicators, in conjunction, help describe the current market environment for whatever I am looking at, and help me examine my risk to reward ratio for every trade. As well, they help me determine how I think price SHOULD be acting -- and allows me to get out in a dynamic fashion. Relying on static concepts for stop-losses (like 5%, 10%, ATRs, etc), has only lost me money in the past. Identifying how price SHOULD be acting and placing a stop in an area that would confirm that I was wrong has significantly improved my performance.

    Am I crazy? All anyone seems to talk about is 'the perfect indicator' -- when it seems like if we went back to basics and understood what indicators did for us, we would better understand how to trade them...
  2. Corey


    Maybe I would get more views if I put "Holy Grail" or "Black Monday" in the thread title...

  3. Yes, you would.

    I don't use any indicators unless you count volume as one. Just S&D and PA.

    People aren't going to jump in this thread just to tell you you're right.

    Like I said before, if you get no or few responses your onto something.