Any indicator by definition is a simple function of the following type: Indicator = F( Time, Price, Volume); So, it does not contain any more information than the raw data. It filters the raw data. The most common mistake that people do is that they think that the indicators will tell them more (add information). So using their interpretation ability people come up with the "MYTH" of the "CRYSTAL BALL" ability of some indicators. Decision making, on another hand, is a totally different story. It uses additional information called "EXPERIENCE" . Use of experience might generate different actions based on observation of the same indicator.
No comment about other indicators, but the concept behind MACD is sooooo lame. I don't understand how it ever got such a following and acceptance.
Hi Maestro, That's about it. It helps the artful in making (and perhaps automating) decisions. Any algorithmic decision making procedure will make use of decision variables (= synonym for indicators) Besides your crystal ball, what else have we left in our toothcests? A rabbit's foot? Be good, nononsense
Years ago, a salesman came to my home hoping to sell me a high-end vacuum cleaner. Among other things, this nifty gadget could be used to dry my hair. The machine could legitimately be used to dry hair! However, if I had to dry my hair in a hurry, I would prefer to use a conventional hair dryer. It is just a personal bias. The idea of using a vacuum cleaner to do so seems a bit contrived. In my biased opinion, using indicators is a bit like using a vacuum cleaner to dry your hair. I'm not suggesting it is impossible. Rather, in my view, it is suboptimal. I think that newcomers value indicators more than they are worth. That was certainly true in my case. I remember thinking how much more glamorous it would be to use modern, "scientific" indicators as compared to the old fuddy duddies who only relied on price and volume. What a leg up I had on those old timers! However, as time progressed, I found that, at least in my case, looking at the source itself was more useful than using a smoothed and arguably arbitrarily manipulated derivative of that source. To each his own. However, consider this. If I told a user of say, RSI, that I do not find RSI useful at all (which is a true statement for me), he would counter with the argument that I am not using it in an optimal way. He would surely suggest that I familiarize myself with it until I own it and can use it in a way that is profitable. This manner of use may not necessarily coincide with the "conventional wisdom" in regards to that indicator. But can I not use the same argument in respect of price, volume and, say, breadth? Perhaps the person who feels the need to use indicators has not studied the price, volume and such in a sufficient manner. Beyond that, it is a matter of preference. For me, I prefer the source. If I wanted to know that a woman liked me, I would prefer to ask her directly (going to the source) rather than using an indirect method such as asking her friends who may or may not be on good terms with her at the moment (indicators). But that's just me.
lame1 (lām) pronunciation adj., lam·er, lam·est. 1. Disabled so that movement, especially walking, is difficult or impossible: Lame from the accident, he walked with a cane. A lame wing kept the bird from flying. 2. Marked by pain or rigidness: a lame back. 3. Weak and ineffectual; unsatisfactory: a lame attempt to apologize; lame excuses for not arriving on time.