To what extent do you use indicators?

Discussion in 'Technical Analysis' started by IronFist, Feb 15, 2007.

  1. I'm falling back into the indicator trap. I keep trying to find that magical combination, like:

    "ok, when x indicator falls below 100, then look for a negative crossover of y indicator, but it only counts if the red line on z indicator is below the green line..."

    Then I find 5 good trades that DIDN'T follow my rules, which doesn't concern me (missing a good opportunity is better than taking a poor one).

    Then I find some trades that matched my "system," but they didn't work (backtesting by eyeballing the charts), and I justify it as "oh, well blah blah blah, so I wouldn't have taken that one."

    Then I find a sweet one that works, and I think I'm a brilliant genius.

    But the weird part is that I LOVE pouring over the charts, looking at "ok, it would have been profitable to enter here, so what were the indicators doing at this time?" and trying to find patterns and systems that involve weird combinations of indicators and stuff that no one else would ever think to look for. In fact, I'll load a new indicator on my chart that I've never heard of, study it for a while to try and figure out how it works (or determine patterns), and THEN do a google search and figure out how it's supposed to work. Sometimes I'm completely off, and I think my way works better than the "conventional" way.

    Do you use any indicators at all? Which ones? If a trade looks good, but your indicator(s) doesn't support it, will you still enter? It reassures me when I enter a trade, and then my indicator confirms it... but by that point it's too late, anyway.

    Could you trade successfully using ONLY indicator signals? I mean using a wrote system based entirely on indicators (ie. enter when x, y, and z happen and exit when a, b, and c happen) that a robot could follow and have it be profitable?

    Or is this what they call "searching for the holy grail" and I should just give up?
  2. Make a universe Use the following:

    EPS positive
    float 5m to 60M
    DU volume> 200k
    institutional ownership >25%
    management ownership >25%

    If STOCH 5, 2, 3 fast line crosses up above 50% add stock to hot list.

    For stocks on Hot list, enter according to the FRV column (see attached)

    For stocks owned, exit when stock no longer meets the Peaking column.

    When an owned stock has less % net of price on a given day than the best % net of price on hot list sell owned and buy hot except for gap ups, do not chase.

    If you have shortage of capital any day, then use rank, according to unusual volume on hot list for that day.

    If you sell after 11am NYC time, then do not buy until next day with that cash.

    This is beginner level for mechanical system.

    A couple of versions of this a public at this point.

    I missed getting the attachment to stick and there is no edit capability to add it. See next post.
  3. Here is the attachment with th leading indicator columns mentioned previously.
  4. once more.
  5. escape


    yes that is looking for grail

    you should stop and find a job

    trading is gambling and house always wins

    I trade successfully because I cheat

    you shouldn't because you don't cheat
  6. Jachyra


    One of the best traders I ever met used to always say that "trading models are to believed, but never trusted." That little saying has helped me so much over the years that I find myself mumbling it in my head everytime I'm about to pull the trigger.

    The thing you have to remember is that the indicators only get you so far. I spent the first 5 years of my trading career trying to find the perfect mechanical approach, or the best combination of indicators, before I finally realized that I was trying to use them as a crutch. I think that a lot of traders try to make trading mechanical, and really kind of abuse their indicators, because letting the indicators do all of the work for you is a hell of a lot easier than trying to actually learn the principles of auction market theory and having to apply them in real time. Its just easier.

    The fact of the matter is (at least in my opinion), that there are a lot of things that go on throughout the day, some of which show up in a chart and some of which don't. The indicators can be a big part of it, but its not the only part.

    I always find it amusing when I see traders who can tell me what all their indicators say but can't for the life of them spot a simple chart pattern thats developing right in front of their very eyes.

    However, if you are convinced that trying to approach the markets in a more mechanical nature is right for you, I would also point out that you should have a similar "long term" perspective that a lot of professional poker players have, and that anyone must have when trying to engage in and "odds-based" business. Just this weekend I was in Las Vegas and played quite a bit of poker. In one day I was dealt pocket aces 4 times, played them pretty well, and still lost with them all 4 times. Does this mean that I should quit playing pocket aces....well only if I want to never play the only hand that I'm guaranteed to be at least a 4 to 1 favorite with, no matter what other SINGLE hand I happen to be up against.

    In an odds based business (like trading, poker, or owning a casino or an insurance company) the laws of averages are not the only principles in play. There are also the laws of distribution (or what some people refer to as random walk). This is why if you flip a coin ten times in a row, while we know that theoretically it should come up heads 5 times and tails 5 times, sometimes it may only come up heads 3 times and tails 7 times.....or heads 10 times in a row for that matter. The laws of averages really only begin to become evident as your sample size begins to approach 1,000,000.

    From my experience, all the indicators in the world aren't going to get you in a much better situation than A-K vs. an under pair (forgive the poker analogies if you don't play, but its how I think). No matter how you slice it, you're going to be in a coin flip situation, with the indicators helping you to get on the "good side" of the flip (which would be the equivalent of having a pair vs. two over-cards). And its important to remember that having an edge doesn't mean that you're guaranteed to win... it only means that you have a better chance of winning.

    So one thing that you must do is determine as to whether or not your set of indicators that you're basing your trading decisions on is solid. If not, well then thats a big problem. But if you have faith in them, then the best thing you can do for yourself is to just not care when you get into a trade that doesn't work out. Even if you have an awesome system you are still going to have a LOT of trades that just don't work out.....just like a poker player isn't going to win with pocket aces 100% of the time. Quite often, those trades that don't work out are going to come in bunches...just like winning trades will often come in bunches. Its not just possible....its probable.

    I always tell new traders that you shouldn't be any more upset about a losing trade than a casino would be about having to pay out a single bet at the blackjack table. I mean, even if you have a system that you estimate gives you a 70% edge, you're still going to have to book a loss 30% of the time. If you allow yourself to become distraught every time you have to book a losing trade, you're just not going to do very well in this business.
  7. IronFist, from now on when I reply to a thread I feel like I'm going to have to warn not just you, but everyone I respond to from now on that because I was not able to turn a net gain last year, that me, responding to this thread is going to somehow ruin your trading career least thats what many traders on ET would like to think. Watch the negative posts towards me roll in.

    I have used many different indicators and still use them today (MFI, ROC, two moving averages 13 SMA, and 21 SMA, and volume). Make sure that you understand the difference between and indicator and an oscillator, even though we use the term "Indicator" to define both, there is a big difference.

    When indicators dont agree it can be hard to make a trade, which is why some on ET say they are "price action only" traders, and claim that price is the only thing that matters. I dont disagree, but it's always been my argument that an indicator will help you see things that a simple bar/ candle chart will not.

    Here is a daily chart for CAT .. a stock I'm investing in. If I was waiting for a volume spike before entering this "trade", I would have been left behind, but if I bought when the gap rose above my MA's, I'd be in at day one (which is what I did...well..the day after but still). It's not that the volume bar and MA disagree with eachother, it's simply that they mean different things. Understanding that meaning is really the art of using indicators, something I'm still learning as well. I've asked just about all the newb question about indicators too, like "what indicators do most traders use?..what lengths?..on what charts?"..I've realized that a question like that is almost impossible to answer. I will say though that moving averages are the most simple indicators to understand.

  8. ======================

    When i first started , attempted to use 50 dma in a robot type way;
    its still useful, but support & resistance are more important.

    So i still can usually mark a notible change in 50dma area;
    and sounds like ' changes are in order since you say 'indicator confirms it, its too late anyway.

    So if a business plan had 100 principles or rules;
    yes 50 dma is 1 of them. . Support & resistance includes 50 period moving average but its bigger/more important than that.

    For example with a downtrending market like QQQQ;
    [and I am speaking historical & last friday, not yesterdays move], no way i would use 50 dma like with SPY/ES[and I am now speaking of yesterdays move/ trend]

    Plans of the diligent tend only to advantage.

  9. bi9foot


    I think Jack meant to say Avg Vol (not DU volume). Correct me if I am wrong
  10. i don't use any indicators, in the sense of RSI MACD Moving Averages etc

    iow, i don't use any indicators that give signals based on analysis of X past price/time events .

    part of the reason is that i know that most traders are losers, and most traders are using these types of things. no edge there for me
    #10     Feb 15, 2007