DislikedWhy people think that some arbitrary summation of past price levels indicates exhaustion or resistance is way beyond me, just look at the chart man!
All indicators are just derivatives of price, why not just go to the source.
I remember the feeling 'naked' without my indicators to start with but that was simply because I did not trust myself to read what was there. You can look back at a chart full of indicators and say 'oh look, the wizzy bizzy is over 66 and the price went the other way!, it must have magic powers!' but if you actually go back and mechanically backtest, you find they are all completely and uterlly useless. But in the end, it's what works for you, but I can't help but think indicators are nothing more than good luck charms.Ignored
I think you're missed my point though. Aparsai understood I am pro-discretional trading. So while you can say that backtesting any indicator has proven them to be useless, I am not using a mechanical system. I don't make a trade every time RSI crosses 50 or every time the MACD crosses. That would be stupid. I take every current situation and analyze what I think is going to happen. If you open a chart it's also easy to see that indicators can form trendlines and chart patterns just as price does.
They can help show a clearer picture because they show things other than just price. They can help show momentum, and hidden resistance levels.
How do you mechanically backtest price action? It is difficult to program a computer to recognize true levels of support/resistance and then go beyond just S/R to have it recognize flags, double tops, head and shoulders, cup and handle chart patterns, etc.. Price action isn't completely mechanical and indicators don't have to be mechanical either. Use them with discretion. Look up the formulas to see what exactly it is they're calculating. How does it calculate oversold/overbought? Why is it important when the fast macd line crosses the slower one? What does that mean?
Indicators are useful when you know what you're looking at. Apply some of your knowledge of trading price action to indicators and you'll see they can help show confirmation of trades or filter out many of the bad trades you would normally take. They're not useless because they use past prices to make calculations. We're always using the past to predict the future.
As I said, price action should be used as priority number one, but indicators can help to give 'indications' as to what is going to happen. Will this S/R level hold? The trend is continuing, but my indicators are showing a slowing of momentum. Maybe I should watch this trade more closely now. The trend isn't clear on my price action, but I can see that it's channeled on my rsi between hitting 30 and 60 several times now. I can watch for a breakout on that to get a better idea of where price will most likely go.
I am advocating discretional trading. Aparsai said, " You are promoting discretional trading to a bunch of newbies here. While discretional trading could be the better way for some pros, it's a poison for the rest of traders."
I don't think I can agree with that. If you can understand price action you can understand how to use indicators with discretion. Just form trendlines on the indicators. Learn what a divergence is. It's not hard to take 5 minutes to educate yourself on the aspects of some of the more popular indicators. Sure it might be difficult to understand ADI/ADX, but I don't use that because I think it's just that; too complicated and unnecessary. Stick to the basics of major uncorrelated indicators and it's not very hard to implement them in your trading. I use RSI, but not any stochastics or %R. In a week I think anyone will be able to form opinions because of those tools.
It just comes down to the trader though. There are many posts and books about how two traders can enter the same trade and one will win and one will lose. It's the mentality of the trader. My mentality is I feel much more confident in my trades when I am shown other aspects of the market besides price. When I can see divergences, trends, S/R, crosses, and other things in the indicators that show other information I feel I am getting a complete picture of the market. I tried trading naked and I felt like just that, naked.
Being confident in your trading is a huge part of your trading success. I want to be confident that this price action breakout is a valid signal. I want to be confident in letting my profits run or getting early signs of a reversal so I know when to take profit. I want a complete picture and I don't think just price action can show that when trading with discretion. I also don't think mechanical trading will ever be as successful as a good discretional trading system. Everyone has the tools to be a discretional trader, its just about teaching yourself how to handle it.
Long story short, using 1-2, maybe 3, indicators along with price action will not hurt you if you take a couple minutes to educate yourself on learning what the indicators are trying to indicate to you. Matt