I have been experimenting with different indicators for daytrading the futures. I have been having good success with using stochastics in sync with the trend but various "experts" tell me this system is flawed. Do I rely upon my limited trade results or defer to the experts?
larrybf, I have also been experimenting with a stochastic on the futures. I trade the S&P mini, but have noticed that the Naz futures sometimes seem smoother in its trend, although I haven't done any testing to know for sure. I have been using ADX to filter for trend. If there is a high ADX, I only take stochastic signals in the direction of the trend and if its low I will consider both sides. However, I don't use this exclusively, usually combining other things to come up with trade entries. There are several problems I've found with the stochastics which the "experts" always tout. Since its an oscillator, it will keep you out of big trends because it will remain overbought or oversold during these big runs. Also, you get a lot of fake-out signals. You have to be aware of this when you trade it live. If you look at a chart of the S&P or Naz for the day, you will see many beautiful stochastic signals that picked tops and bottoms of the moves that day. This can blind you to the fact that there are a lot of other signals that quickly reversed and went back below or above the signal levels. If you ever test a stochastic system in a program like TradeStation, you will almost always have a losing system unless you over-optimize it to the data. There are just too many false signals. That is why I started trying to filter for trend. As with any indicator, it can't be used in isolation. I am still trying to find a combination that I am happy with. I admit much of my trading is still discretionary, using the indicators as confirmation tools. I have always wanted to put my trading into a strictly systematic form, but I've never found a mechanical system that I am confident in. I've gotten a little off topic from your question, but to try and answer it, I think the stochastic does have value, but you must find ways to filter the signals, as you seem to be doing. So the experts are right, but that doesn't mean it can't be used successfully. I think market dynamics plays an important part, as I've seen some days where it works great and others where it is just terrible. I would be interested to know how things turn out for you. Kirk
Hi, my 2cent's, I've been going back and forth trying to trade the Nasdaq mini's. I've been using a 1 min and 3 min charts with EMA's. I was hoping to just use the EMA's crossing over, but found the actual point of entry tuff, because of the movement of price until the time had passed. So I've gone back to scalping. Pretty much I've been more succesful using oversold/bought stochastics'readings on the 3 min chart, then using the 1 min as an entry when I see the change in direction. Also adding candle pattens on the 3 min, again entering on the 1 min candle signals. I'm still not getting any big winners, but it is amazing how many points you can rack up by the end of the day. My problem (there's always at least one is I get greedy/lazy and try to ride some trends which end up in me blowing up the weeks profits (because of having to allow bigger wiggle room, which genrally fakes me out, and I end up covering with a larger loss)). I'm sure there is plenty of advice out there, and I am open to it ??? But pretty much I'm thinking I should just keep to scalping and forget about trying to make those big home runs, but it's tuff, especially when you see 100pt trends and all you got were a couple of 3-5 pointers !!!. Just for the record I'm taking one of my regular breaks from trading to reassess if I'm cut out for this, again :-0 Oh well, there are more important things in life !!!! Later, Andy
Personal opinion from a long-time S&P day trader ----- As Kirk correctly points out, any long-term test of virtually any stochastic-based methodology will show large losses. Because that's the case, why use stochastics at all, even with filters that can improve them a bit? There are much more effective ways to trade the indexes with methods that are considerably more productive and profitable. My own involve personally designed velocity/acceleration indicators coupled with a battery of adaptive moving averages applied to multiple time frames. The real money in daytrading futures is made not in being able to pick an occasional top or bottom (something stochastics can do when they're in good form) but in hopping aboard moves just as they are gathering sufficient momentum and then riding those moves for all they're worth until they play themselves out. For locating such possibilities and then finding the best way to trail stops on them (again, the way real money is made in futures), many other methods are vastly superior to stochastics.
Armaniman, Right On ! and that's true for Nasdaq index too, of course. There are some other good comments in the 'intraday indicators' thread. HawaiianTrader, I agree with you it was a mistake to try to chase the home runs. How many died that way ? Changing time frame is another serial killer. vpiNeo
armaniman I agree, I don't think any indicator, stochastic or otherwise can be used in isolation. Any indicator I look at is strictly used for confirmation. I like to have several things on my side when I enter a trade. Does that mean I will be right? Of course not, but it helps my confidence in taking the position, so in that regard it has value to me. But on the flip side, I could never trade anything as complex as that. I have found that the simpler the strategy, the better it works for me. No matter what new idea I try, I almost always end up going back to the basic stuff like support and resistance. I'm glad you have found a set of techniques that work for you. That's the great thing about trading, different things work for different people. Once you find what works, its like any other profitable venture, you just have to do it over and over again as long as the idea remains valid. Regards, Kirk
Kirk --- I agree totally that different approaches do work for different people, and I'm constantly amazed to see that in action. I know futures traders who often seem to hold the opposite position from me, yet we both make money on the day (different time frames and length of trades are usually why). But actually the methods I use aren't really complex at all. Velocity/acceleration is simply a much superior way than traditional indicators of measuring true momentum and adaptive moving averages simply improve traditional moving averages by using a filter to distinguish random market noise from genuine signals. They're just improvements on tried-and-true approaches to trading, and I don't think they are inherently any more complex than stochastics or many other forms of technical analysis. Good trading, Charlie
Some time ago I was testing two identical systems.The only difference was that at entry point one system was buy the other sell. Both made money consistently. Other time I was comparing the same systems,the only difference was the width of the stop loss point(1/2 cent vs. 1 cent). The system with 1/2 cent stop loss was consistently little bit more profitable even with more losses at the end. If somebody says 70% of his trades are profitable it doesn't necessarily mean he is a better trader than somebody with half of his trades being losers.
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elon - a quick question: I'm curious why in this post you sound like a happy user of an unrelated outside service ("One service that helped me help my clients is a service..."), while in the Spread Trading thread you say "...WE do offer a spread service..." and you cite the same service in both posts? Could clarify your relationship so people can better evaluate the posts?