Kicking mentioned TA for the Trading Professional. So I decided to look it up on amazon.com. Right below it was the following: Day Trade Online : Start Trading for a Libing Today! (Wiley Audio) [ABRIDGED] by Christopher A. Farrell (Reader) (Audio Cassette - October 2000) Didn't realize how much people could get out of day trading!!
I have finally removed every indicator (with the exception of 200 and 50 SMA's on daily charts as a tribute to my mentor) off my charts. I will tell you my experience with some of the most popular day trading indicators and why I ended up going indicator-less like many many top traders at my firm (and on this board) did. Stochastics: When I started working at my firm I started with the 1 minute stochastic scalp method after I read Jay's book of UndergroundTrader fame. After a long struggle, I realized that this indicator simply generates way too many fake signals. Ok, I understand you are supposed to use it on pullback's of an uptrend, but the cold hard truth is when a stock is oversold, if you look at the chart itself, it always look like it about to start a downtrend, sure, sometimes it bounces, other times it doesn't. The problem is the times it doesn't bounce will hit you hard as the stock will blow your stop and spread you hard, and when it does bounce, many many times it will not reach 80-100 overbought area, it fades out somewhere along the line. By the time the stochastic actually generates the sell signal, you are left with a flat trade. Worst of all, almost all breakout's and breakdown's are considered overbought and oversold, this indicator just conflicts with my own trading too much. I never ever traded profitably after commissions with it, although I was making money for the firm, gross positive and building up a net loss. Moving Averages: On daily charts, 200 and 50 are sometimes important levels. The problem is, there is ZERO meaning of the average price of last 200 period, other than it is an average. When used as support and resistance levels, it may work, it may not, if the stock is the kind of stock no one trades then it won't work at all, if the stock is vastly popular the specialist will always blow your stop around that level before going in the way it is supposed to go. I keep it more or less as a tribute to the man who introduced me to Technical Analysis, but I rarely use it. On intraday charts, it is even worse, why would a stock bounce off a moving average? There are so many people using so many different parameters, and all it can tell you is whether the stock still has momentum. It is NOT support NOR resistance, it DOESN'T tell you where the buyers and sellers are, it ONLY tells you if the stock still has momentum. By the time you get a crossover on this thing you are already way out of money. I used to use them to set trailing stops, but I realized a trailing stop using a moving average is just like a quarter point stop, it has NO real technical meaning other than it is an average. I would much rather set my stop below a breakout level, or when a stock pulled back and printed size at a certain tick without breaking it, set my stop .1 below that level, or simply below the low of a previous candle. Bollinger Bands: I have to admit I really liked it when I first used it. Bounce off the low band and such worked wonders . . . The problem is, again, the bands themselve are not true support and resistance levels, merely a momentum indicator and a overbought/oversold indicator. I can't explain exactly what is wrong with indicator, I think it made me took too many bounce of the band type of trades that just went nowhere. Many many trades where a stock would seem to break out of a channel to the downside and snap right back up to trigger my stop above the midband before tanking. Of the 3 indicators I have traded with this is the best of the bunch, but it also put me into my current losing streak, not because the indicator itself is the fault, but rather because like an invinsible set of ropes they tied my trading hands. Here is why many many successful traders do not use indicators. Every indicator is intended to do tell you the state of the stock, is it uptrending/downtrending, is it overbought/oversold, and in some cases, the momentum of the move. The problem with every (at least public) indicator is, even an relatively inexperienced trader such as myself can look at a chart and tell you the state of the stock with or without those indicators. There is almost nothing more than a 50/50 indicator. While some indicators definitely perform better than others in say, a trend based market, there is nobody out there at the opening bell telling you "hey today is going to be a trending day!". So what indicators ultimately do is, it is like having another trader, with a different perspective, sitting next to you, offering his opinion on the market. This trader is no better than yourself, the only advantage he has over you is that he is always unemotional. When your trading reach a certain level, you want total freedom, you don't want anyone, or anything telling you what to do, you develop a state of mind that tells you what will happen next. What traders mean by gut feeling is, his best guess at what the market will do next, based on the price and volume, or whatever set of indicators he uses. This gut feeling is called experience, it can not be quantified, it can not be taught, it has to be developed over time, just like an experienced cop looks at a crime scene and sees clues that a rookie will surely miss, it is not systematic, it is not written in books, because we all have to answer the same question, is it a pullback/squeeze, or is it a reversal? For a new trader, having another "trader" (indicator) who can give you quality advice is great, and it can be more accurate than your own eyes. When you become more experienced, the indicator becomes a guide, and you override it enough times to the point it is not worth having anymore . . . For those who use a public indicator and makes a lot of money, I think it is because they are so used to their indicators and know its weaknesses so well, to the point they know EXACTLY when to use it and when to ignore it. In reality, their trading skill is at such a level that they can probably trade just as profitably without these indicators. Let's not forget a major drawback of all intraday indicators, when the day begins, there is no "last 10 period", the indicator lags soooooooooo much, almost completely worthless. At 10:30, when the indicator collects enough data to be effective, for many traders who favor the open, the day is almost over. Think of indicators as katas in Karate, you use them as guidelines, in a real fight while pre-canned set of moves (say a few punches followed by an unexpected kick) can work wonders, the best fighters however will know when to use them and when to avoid them altogether. The only FACTS in trading are price and volume, everything else, are intepretations, and for many traders, his/her own intepretation is good enough. Buck: Traders have one gut feeling before the market opens and another when it actually opens. Praet said around lunch time on Monday that this market will close on its lows, and it did, and many people including myself had the same feeling. Gut feeling is just one of the 50/50 indicators . . .
I'm not sure if I claimed that the dow would end up green. I said that I had it from very good sources that that was the case. These people are people who I've watched trade before, and they have info and order flow from some of the biggest players in the world. Don't forget that the governemt sure did it's best to make it green. Greenie cut 50 bp, they relaxed the rules on stock buybacks, and even stoped the globex futs from trading so as not to make things look too bleak for moo orders. In the end, the sellers overpowered things. I personally think it was spillover from asia, and asian sell orders (we'll never know). As for my gut feel, I bought about 10k qubes near the open, and when I realized that the market was gonna roll over, I then sold em all within a dime of the top. Then shorted the second top (with smaller size) and if you know me, I almost never short. Lets just say that my gut feel prevailed quite well. I had some overnights that hurt, but lets say that I was able to turn almost a 25k loss on open into a 3k gain by close. It's difficult to predict 5 sigma events like giant buildings getting blown up, and I was caught very long unfortunately going into this day. On that tuesday, the futs were quite strong before the bombings, and I was most likely right for that trade had there been no bombings. I think I may have given you the wrong impression. I don't trade haphazardly off my gut. I use the "great new pattern" and trade off that plan mainly. I use gut feel to predict when the selling climaxes and when to enter the trade. -------------------------------- Neo hr. this is off topic, but I do know a trader who trades off moon phases... She trades the sp futs using overlays of moon cycles and other astrological effects of the moon. I thought she was full of sh*t, but she gave me the charts that prove her points. Since the early 70's she has had average results of around 30% annually, and not a loosing year. I definately believe her work, even though she doesn't know a thing about the stock market or technical analysis or the economy. She's an astrologist basically. Everyone has their ways, and if you have a profitable method, why question it. As for indicators for you I personally them really useless. I think the first 6 months for me I paid way too much attention to them, and it was a real handicap. The only things I really watch now are those indicators that I know many other traders watch. 200 day moving average for instance is an obvious example. You are almost guaranteed of a bounce there the first time. In reality, it's just a line that your computer program draws which I find has very little basis for any judgement, but other people give it merit, so I must at least be cognizent of it. Bollinger bands are the only main exception. I don't know why he made those public, but I guess he was rich enough. I use them at times, but not that much really. Most other indicators, like moving averages, rsi, you can just draw with your eye, so they're not that useful. I personally have a 12 period ema, bol bands, and rsi on every chart that I look at, but I almost never really look at it. Volume is the only thing that matters really. You just have to know what big people are doing. Indicators just tell you where they're likely to do it, but unless there's volume, then they've just chosen to ignore the indicator, and if they do follow that indicator, most likely, the volume will confirm before whatever indicator you use does anyway. I'm sure many people use indicators very well. I ask dustin about 50 times a day what his stochastics say about the market. I really value his opinion very highly. Very often though, my gut feel and his math are in unison. I just like to have it to confirm an idea that I already have. ----------------------------- Tymjr- I'm glad that you've had success with your indicators. I'm sure that some do work, if not no one would use em. The well known public ones though are not the best most likely, just b/c people know about them, which to an extent mitigate them. I use one personal indicator [set] which is my long/short comulitive, long/short daily, and long/short intraday ratio. It is a gut feel one though. It is to be very non-specific, the ratio of winning long/short trades and loosers I've had lately. It's way too difficult to explain, but It's been capable of predicting every single longer term market move of over 10% so far since I discovered it around the tops of last march/april. -------------------------- Bucky Lee- I only use my gut feel cause it's outpreformed every other system I've come across. If either my gut feels begins to be less accurate, or I find a better way to make money, then I'll change tactics, but for now, I rely on my gut in the interpretation of the price action. -------------------------- I hope this answers all questions on this topic.
Kudos to Hitman and praetorian2 for their informative posts. Both of you've made interesting observations. I think it is important to point out that I struggled for a very long time and put in a lot of thought and hard work developing the concepts and indicators I use. I do not possess a âholy grailâ. I have nothing that magically produces incredibly high probability buy and sell signals generated form a single all encompassing coded formula. I do have a collection of very valuable tools and concepts build on solid and observable market principles. I have no idea if these indicators will continue to function, in their present form, as we move into the future. I find that I must constantly adapt to changing market conditions and employ modified or altogether different tools. Thankfully, there appear to be a finite number of roughly similar environments, making a complete overhaul of my systems unnecessary. I mention this to dispel the possibility of anyone holding the notion that I just ârolled into it.â That it was easy. I've hit a lot of brick walls and dealt with an enormous amount of frustration, primarily due to psychological issues regarding risk. I've spent a lot of time thinking about what drove the market, where that might be reflected, and how to organize the data into a coherent form. At the same time, I've sought to find repeatable patterns in the behavior of the market using statistics. I am in an ever-constant state of evolution as a trader to one degree or another and I'm sure I will continue to deal with challenges and frustrations for the remainder of my career.
Originally posted by Hitman The only FACTS in trading are price and volume, everything else, are intepretations, and for many traders, his/her own intepretation is good enough. Hitman, Awesome post. One thing I would add is there is one other fact in trading and that is the number of trades per time period, or "Pace". I find this fact very useful in my trading. Regards, Alex
<i>Originally posted by Hitman The only FACTS in trading are price and volume, everything else, are intepretations, and for many traders, his/her own intepretation is good enough. </i> This overlooks the third important variable, which is time. All indicators are derived from some combination of these three variables and are, therefore, only a substitute for a well-calibrated eyeball that can scan a stock chart. To make my trading decisions I would prefer to rely on the raw data and what it is telling me, rather than indicators derived from this raw data. However, the way I trade (pullbacks in high relative strength stocks), indicators are very useful in another way. It is very difficult to write pattern-recognition software. However, it is very easy to use indicators to sort out a shortlist of charts that are displaying characteristics of the type of behaviour I may wish to trade. I simply sort on the basis of a minimum stock price, average trading volume, a measure of high relative strength and a low value of RSI to catch the stocks in a pullback. I then cull the shortlist visually to find those candidates that are displaying behaviour in terms of price, volume and time that most interests me. Finally, let me say that the essence of trading is to find a situation in which, after entry, the stock has to move only a short distance to prove you wrong, but has the potential to move a large distance if you happen to be right. That's why I like to trade pullbacks. If the low of the pullback is taken out, I was wrong. The details of my trading style are discussed on my own bulletin board (free and non-commercial) here http://communities.msn.com/ShortTermStockTrading/messageboard.msnw
I for one, appreciate your sharing of info such as this for newbies, such as myself. Wish a few others would share more . Did you see this Zboy---bet you have some excellent ideas and styles
Gut feel. What is that? I hate to bring up that Tony guy, but he has taught me more about making money than any book, trader, web-site, etc. (btw: Tony is the personal coach of Paul Tudor Jones) Guess what: gut feel is simply your unconcious mind giving you a signal based on every bit of data you've ever given it. It knows what you consciously don't. When you truly become a master of anything, it is displayed by an unconscious competance. Stated another way, some people process things visually ( like chart reading), other people talk to themselves, some people feel what their body is telling them. Just because you don't do it a particular way, doesn't make it wrong. Nor does it mean it can't work. I believe that any serious newbie that hasn't read the Market Wizard series is missing valuable info. The main theme, repeated over and over, is that you must match your system/methodology to your personality. I have found that once you do that, trading not only becomes very easy, it's actually a joy. Thanks for listening to my ranting.
This has been a great discussion. I am always amazed at how different traders can trade totally different methods and all be successful. Those methods can also be taught to someone else who totally blows it. The thing to take from here is that there are probably a million ways to make money trading. The hard part is finding one that fits your personality/psyche. I continually search for a mechanical way to trade the market, mainly because I continually search for a way to divorce my ego from a trade (as Marty Schwartz puts it). However, up to this point, my greatest trades have been just plain discretionary "gut" feel stuff. I long ago gave up on canned indicators, and believe that you have to take tymjr's approach to it and develop your own proprietary stuff that interprets market movement the way you see it and not the way everyone else sees it I first got interested in trading when I took an investing class in college from a professor that traded the S&P futures. He always said that whenever he had a "gut" feeling about a trade, he would go to the bathroom and wait for it to pass. Of course, he didn't trade off of indicators either, he was one of those that went long when Mercury went from 30 degrees to 90 degrees heliocentric or Neptune was conjunct Saturn blah blah blah...but he used it successfully. I researched that to death and never found it of any value, so I went back to my gut. I will keep looking at the mechanical side with the hope of eventually finding something I am comfortable with, but until then I will just keep working on my intuitive interpretation using the computer God put in my head and a little help from the fun-filled worlds of statistics and risk management. For neo_hr, I know this discussion is not in line with what you hoped, which was (I am paraphrasing here) what indicators do we use to make money each and everyday in the market. Clearly from the responses you can see that there is no one or two indicators that lead to trading success. They only sell books filled with hope for the dreamer. You have to learn to incorporate what works FOR YOU. And there are literally millions of things to choose from. This only comes from long hours spent researching and testing and trading in real-time with small amounts of real money. Only then, if you survive the inevitable frustration with the inevitable failure you will come across, will you find a trading method that is uniquley you. So, strap in for the long haul...its going to be a bumpy ride that you will want to quit many times, at least if you experience the journey the way I have. But that is not meant to discourage anyone, only to prepare you for the reality of it. Best of luck to you. Kirk
Good advice War Eagle. One veteran trader I read awhile back talked about the time a new trader came up to him and asked him if he could teach him to trade in a couple of weeks. He asked the guy if he would ask the same thing of a brain surgeon.