Price action is king, but don't diss indicators yet

Discussion in 'Automated Trading' started by alex.samant, Aug 1, 2008.

  1. I have been a long time fan of price action and my setups do use only S/R at the moment, with a healthy dose of swing analysis for identifying wether i have an edge or not, throughout my various setups.

    However, if used in the right combo, indicators have a certain value.

    If you limit yourself to identifying a market environment and not take a trading signal off an indicator, but off price action, i came to the conclusion that good results are achievable.

    I want to bring you an example.

    Let's say you apply a 20 SMA and a 5.3.3 Stochastics with the 50line as a threshold.

    Now, when 20SMA is let's say pointing UP and the 5.3.3 Sto is under 50, YOU HAVE AN UPTRENDING, UNDERVALUED MARKET.

    However, this is the indicator's value ends. It's consistent in the sense that it will objectively identify this market condition.

    What you look for in this type of market environment is totally up to you and you can use price action here to trigger a trade or not.

    For instance, two consecutive positive closes after a negative one (so a minus/plus/plus candle situation) might trigger a trade ...

    What this means is that in this undervalued uptrending market, people got enthusiastic and managed to maintain this state during 2 periods.

    Just my 2 cents here... Thoughts would be appreciated.
  2. i used to do that too ...
  3. syspool



    A SMA20 and a Stoch 5,3,3 don't match well for my eye. The Stoch is much faster than the SMA.

    I use 15 min charts with EMA20, Stoch42,42,3 and Stoch63,63,3 plus CCI60,36 and CCI90,54. I use Tradestation.

    These fast and slow settings of the Stoch and the CCI, together with the price action and the EMA give me reliable signal points for my discretionary trading. But the trick - or the art - is the interpretation of the whole picture.

    Happy trading, Felix
  4. well, choice of indicators are really a matter of debate (as well as their parameters)

    the idea was that they are somehow useful at identifying a condition before one acts based on other cues.
  5. Acumen


    I use a custom indicator. That’s the real deal. If you come up with all your own code it gives you that much more of an edge as the chance of anyone else using the same exactly signals will go way down.

    Weighted price movement is all that matters in my opinion. I run off of something in that general direction.
  6. the problem is, that few people actually will take 100 instances of this scenario, and then do a test to see what happens during the next period of time they are supposed to work.

    I did this with many indicators, have seen a sizable number of studies on them, and they are generally not very predictive.

    that is my problem with technical indicators. People believe in them, promote their use, and defend them via "works for me" or "I know someone who uses them successfully" or "under certain circumstances, they can be useful"

    So it is a belief, and is no more valuable than holding a 4 leaf clover while trading.
  7. Xuanxue


    In the fury of attempting to place one mode of technical analysis as having a greater statistical chance or worth in favorable trades over another a key element is overlooked: price action and tape reading are the basis of all technical analysis!

    If you're truly a fundamental analyst where prices trade are only important insofar as if it is under or overvalued.

    Pattern reading and breakout strategizing that so many mightily call pure, is only pure in the fact that it fundamentally reflects predicting future price action soley on past price action performence, or lack thereof. Vis-a-vis: technical analysis!

    A great deal of indicators try to split the difference between the two camps and show where price action CAN BE or SHOULD BE under or overvalued based on past statistical percentages in variances of PAST PRICE ACTION PERFORMANCE.

    That you aren't able to use the plethora of extant indicators as they were intended, doesn't negate the fact that price action reading is central to the entire technical analytical field that you so hypocritically decry.

    How do you like them apples?
  8. Just because you could not find any predictive power, doesn't mean that someone else could not....
  9. ammo


    fundamental indications suggest that the direction of the equities mrket will be subject to the dollar value and the price of oil,the equity markets began to rally as the dollar rose and oil sold off,if oil finds a base here,the equities will find a cieling,trying to trade with your indicators,the prices in the 2 other markets mentioned,or indicators in all 3,is the bigger picture,and to be successful you must always have the fundamental big picture somewhere in your thought process,as obvious as that is,it is easy to lose sight of while trading off indicators
  10. rcanfiel may want to considergiving up predicting as part of his, or any strategy.

    Predicting is not necessary. My view is, since it isn't necessary, why would anyone who works on strategies ever incorporate it in a strategy????
    #10     Aug 3, 2008