In this day, It is simple for a trader to open up a chart and throw all sorts of indicators on it, curve fit it by changing parameters, and have a technical system that appears pretty solid. Its exciting to look back over the chart and see all the winning trades the system produced in the past few months and become anxious to see how the system will continue to perform.
All of which is fine, if everything seems logical. A lot of traders find themselves trading a system which is based off of a combination of the MACD, RSI, moving averages, or a combination of a few others. What bothers me about this is people will add these to their charts not even knowing how they function. If the principals behind why something works are unknown, how can anyone be sure that the squiggly lines they call an indicator makes any logical sense at all?
More time should be spent on finding out how indicators tick before actually using them. If not, trading becomes nothing more than gambling with a very temporary edge. I have spent months sometimes trying to make sense out of varying degrees of price action, making sure every bit of what I am going to implement into my trading plan makes perfect sense.
All of which is fine, if everything seems logical. A lot of traders find themselves trading a system which is based off of a combination of the MACD, RSI, moving averages, or a combination of a few others. What bothers me about this is people will add these to their charts not even knowing how they function. If the principals behind why something works are unknown, how can anyone be sure that the squiggly lines they call an indicator makes any logical sense at all?
More time should be spent on finding out how indicators tick before actually using them. If not, trading becomes nothing more than gambling with a very temporary edge. I have spent months sometimes trying to make sense out of varying degrees of price action, making sure every bit of what I am going to implement into my trading plan makes perfect sense.