With so many indicators available on the market for establishing trends, it is difficult to know which one to use to achieve more consistent trading profits. I have been using a 20 period moving average on a 2 minute FTSE bar chart for some time and notice that it generates many false signals and,even worse, stops out many a good trade too early. I have been looking at varying the time period and it looks like the longer the period of the moving, average the more reliable the signal. and moore importantly, the bigger the move it captures. Would you agree that this is to be expected or is it just that the data that I have looked at that exhibits these characteristics.
this is a typical ET tread you will recieve various answers from all the so-called guru's here, take it with a grain of salt. there is no such thing as a trendindikator which works "best".each market is different, each timeframe is different and each trader is different; therefore some ma will do good on some markets in some timeframe and will do worse on other markets or other timeframes or in the hands of other users. on other markets/tf's simple higher highs/lows will do better its all personal choice, there are millions way to make money. to me more important is not trying to predict the move(s) a certain instrument will make or trying to identify in what current trend it is moving but see trading in a different way and find an edge regardless of the trend
Are you simply looking for trend direction or trade signals? Trend can be identified by a series of higher highs and higher lows for up and the opposite for down. Put a trend line on the lows or highs and you have the trend direction for whatever time frame you are using. If you are looking for entry signals based on some indicator; your example of the 20 ma, that is a different matter.
I think you are correct in asserting that I am using the indicator as a an entry exit signal as well. Perhaps I should seperate the trend indicator from trade signal generator. Is that what you are suggesting?
Yes - If you are simply buying and selling crosses of a MA you are playing a losing game. I use the 20 EMA as a trend indicator - above it is up - below it is down. I then use retraces to the EMA as entry signals. The signals are based on price movement but I try to trade in the direction of the trend.
To distill what others are saying: An indicator is not a trading strategy. I'm still in the theoretical phase of playing around, but I can say at least trying to trade straight on indicators hasn't been successful. I'm starting to see more interesting things trying to put some smarts behind the signals. That would be things such as: 1. Delaying until there is confirmation 2. Detecting "indecision." That is, the indicator may have hit a signal but may be turning right around on itself. 3. Assigning a magnitude to signals such that you have "strong" and "weak" signals. I'd be happy if somebody else added some things to that list because I'm trying to work a strategy out from some indicators for the first time now.
My understanding of the questions you are posing began when I learned to use TradeStation in 1997 or so. By forcing oneself to codify the logic of trend, signal, entry, exit etc. you internalize many of the answers to the q's you are asking. I'm not a mechanical systems trader but use such testing to inform and guide entries. Your mileage may vary, but... I believe those who made money trading/investing do so bec they stick to their method like glue. it appears many methods give an edge but you're best to find one (quickly) that suits you, find a mentor that will work with you. Personal experience--I tried everything from moon cycles to "rocket science" and found what worked for me was very basic, old time tape/chart reading, along with perhaps two indicators. also, try to zero in on a time frame--are you scalping for pennies or waiting for long term signals. Again, don't shop every idea out there. You never reach the end and you squander your time needed for "perfecting" you core method. Your question is very basic. No problem. But get on Amazon and buy some used trading books and read carefully and deeply. Don't just start with an indicator and a discount brokerage account. If you go with Interactive Brokers you can paper trade in real time. Others may do that as well.