This question was sent to me from one of our students: "Hey Joe! What market indicators do you feel are the best to use: Moving Average, RSI, Bollinger, etc....? I realize there are many other considerations." Oh boy! There was a time I used indicators as my main tool for entry signals. However, these days if I use one at all, I use it only to show me something I canât see or to support what I see with my own eyes on the chartâtrade what you see! However if you are going to use an indicator, then prior to making the choice the most important thing to consider is your time horizon. How many bars in the basis of the indicator gives you the highest percentage of accuracy? You need to build a huge amount of evidence before actually making the trade or believing in the signal. Try to use two non-correlated indicators such as the fast Stochastic, and Bollinger Bands, to see if they support your thinking on the trade. If they don't confirm the trade, stay out. By non-correlated I mean they measure two different things. Stochastics measure momentum, whereas Bollinger Bands measure volatility. Do not attempt to do short-term trading, along with position trading. Since potential gains in short-term trading are so limited, the risk controls have to be very tight, so your indicators have to be much sharper. The most important thing to remember about technical indicators is that they were never really meant to be "stand alone" indicators. The nature of things prevents a "Holy Grail" from being possible. Indicators can be part of your trading method, but not your entire trading method.
Joe, I suggest you provide the following information to your students regarding indicator trading. This person has a very good understanding of the issues with "indicator fascination". http://www.tacticaltradingmethod.com/indicator-trading.html I suggest everyone read this several times, RTS
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I strongly agree based upon the few profitable traders and many losing traders that I personally know... Those that are profitable are not using technical indicators or any other form of technical analysis as a stand alone strategy. Unfortunately, many traders find this critical fact to late. Yet, the problem is instill in newbie traders because many traders find it much easier to discuss indicators instead of discussing all the other stuff involving the price action. Mark
ha ha, I love a sense of humor! too many tight asses in these forums. Sure come over! Where you at? As long as you can compensate me for the oppportunity cost! Fun Trading!
youngone, that depends on how much money you have to spend on your trading education!?!?! Just keep in mind, that you get what you pay for. But here is the advice that's worth it's letters in pounds of gold. There is a myth out there, and here it is: "knowledge of the market place must be bought" <--- that's the myth in case you didn't catch on. Keep this always in mind, and when it will finally make sense to you, congratulate yourself as you will be way ahead of the 80% of suckers out there! Fun Trading! B
http://www.elitetrader.com It's spread all over the place here at ET so keep your eyes open for discussions that help you understand the markets that's not talking aobut technical analysis. Mark
RTS: Thanks for the link to the article. It is an excellent article and I agree--people should read it. There is a lot of truth there. JR