Why Indicators will fail you | Forex Factory

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Why Indicators will fail you

  • #1
  • First Post: Sep 16, 2008 10:46am Sep 16, 2008 10:46am
In this thread I will talk about why indicators should not be used to base trades on. I will discuss the reasons that they are not a reliable trading tool.

I was at the Forex Expo this weekend. I went to several meetings where they pitched elliot waves,emas, fibo's, mac d. I am going to tell you why these indicators are a trap.


I went to one meeting where the second comment they made was this. The more people that use the 61.8% fibo level the more reliable it becomes. I cannot think of another statement that could be further from the truth. That was a flat out lie. the worst part is this group had 35 people listening to them teach falsehoods.

I welcome discussion on the topic. This should be fun. I will also talk about how reading a chart, and price action is the way to become a consistant trader. You have to look at the bigger picture what is going on behind price.

Questions are welcome I will answer them all.
  • #2
  • Sep 16, 2008 11:05am Sep 16, 2008 11:05am
I was also at a meeting where they were drawing fibo's on a one and five minute chart. that is just crazy. Again just cause a currency hits a 61.8% level does not mean there is a setup.

There still have to be buyers or sellers coming into the market or else those levels won't mean anything
  • #3
  • Sep 16, 2008 12:21pm Sep 16, 2008 12:21pm
Careful trading right now before a major news announcment. Always best to let the dust settle
  • #4
  • Sep 16, 2008 12:36pm Sep 16, 2008 12:36pm
ok, I am listening...
  • #5
  • Sep 16, 2008 12:46pm Sep 16, 2008 12:46pm
So here is an example on the e/j. We are at a 50% fibo level right now. It is a downtrend. Alot of folks will be going short here. Also at 61.8% fibo. Lets see what happens.

Right now its respecting the 50% fibo with some resistance areas that were right at that level. This might be one that works, but in the long run its not a reliable method of trading
Attached Image (click to enlarge)
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  • #6
  • Sep 16, 2008 1:11pm Sep 16, 2008 1:11pm
Steelhead -

Right on, baby!!

I tried every indicator out there. When I threw them all out the window and focused on price action, that is when my trading turned around. I now get over 10% per month consistently, and I have done so for the last 15 months.

Trading systems based on indicators alone is how con artists extract money from wannabe traders. This is not an opinion, it is a fact. Believe it or learn it the hard way like I did.

This is not to say that indicators have no value. They are wonderful for quickly summarizing what has happened in the past. I use MA's just for that purpose. But all my entries and exits are based soley on price action tempered by fundamentals.

Oh, and by the way, the most useful indicator I have found after 4 years of trading is ATR. ATR will tell me if I have enough room to trade.

JohnW
Chance favors the prepared
  • #7
  • Sep 16, 2008 1:23pm Sep 16, 2008 1:23pm
Quoting JohnW
Steelhead -

Right on, baby!!

I tried every indicator out there. When I threw them all out the window and focused on price action, that is when my trading turned around. I now get over 10% per month consistently, and I have done so for the last 15 months.

Trading systems based on indicators alone is how con artists extract money from wannabe traders. This is not an opinion, it is a fact. Believe it or learn it the hard way like I did.

This is not to say that indicators have no value. They are wonderful for quickly summarizing what has happened in the past. I use MA's just for that purpose. But all my entries and exits are based soley on price action tempered by fundamentals.

Oh, and by the way, the most useful indicator I have found after 4 years of trading is ATR. ATR will tell me if I have enough room to trade.

JohnW

John you would have been amazed how many people were listening to these clowns talk about all these indicators at the conference. lambs to the slaughter is what i was thinking.

Just crazy that folks listened to them without laughing. Im not saying fibos dont work, but again there has to be buyers or sellers to make the levels work. Alot of times they will take it past the levels get everyone stopped out then take it in the direction of the moves
  • #8
  • Sep 16, 2008 1:41pm Sep 16, 2008 1:41pm
so what is the tools that we can use for trading? and i have been to the fibo EW classes but i still in doubt with them...
  • #9
  • Sep 16, 2008 1:54pm Sep 16, 2008 1:54pm
Quoting nicedevil
so what is the tools that we can use for trading? and i have been to the fibo EW classes but i still in doubt with them...


Good question devil. the tools are learning what is going on behind price. Learning how to spot professional trading activity.

You do this by reading the charts candle patterns and such. Get rid of the clutter it frees things up for you, so you can see the market more clearly.
  • #10
  • Sep 16, 2008 1:57pm Sep 16, 2008 1:57pm
Indicators are like a traffic lights, they are helpful to avoid car accidents, but everytime you see a green traffic lights, it doesn't mean you must cross the crossroad without looking left and right roads, that's the error many people do.
  • #11
  • Sep 16, 2008 2:12pm Sep 16, 2008 2:12pm
I am rather neutral about whether indicators works or not, I belief they are developed for a reason. I myself don't like to use them, and I like to think it is my poor interpretation that leads to its failure.

I guess and can only guess that it is a matter of statistics. You can take any price movement and measure it against something else totally unrelated and still get a set of data.

I am sure there are successes with indicators, till I find out how, me too will stick to price action.

Still, thats just my own experience.
  • #12
  • Sep 16, 2008 2:14pm Sep 16, 2008 2:14pm
i'd also like to add that elliot waves are one of the biggest jokes (or slaps in the face, depends on your preference) to ever be brought into technical analysis.

i have not yet been able to identify a clear cycle in any type of instrument i tested, currency, stock etc. this can be easily assessed by calculating and plotting a power spectrum via either fourier transforms, wavelets or other methods.i pretty much get almost flat power spectrum graphs for anything i tested, which means no clearly indentifiable cycle.

of course, this would require some DSP knowledge, something which i have to assume most traders don't have, otherwise there wouldn't be so much fuss about technical indicators which are mostly digital filters of different sorts that many either don't know how to use properly, or that are completely worthless to begin with and not worth bothering with.

i really wish people would stop being lazy and instead of either choosing to blindly fall into the trap of a skilled conference presenter or continue to whine about how an indicator does not "work", they'd start studying some real science, like math, statistics, dsp and apply that to trading.
  • #13
  • Sep 16, 2008 2:17pm Sep 16, 2008 2:17pm
Quoting tunera
Indicators are like a traffic lights, they are helpful to avoid car accidents, but everytime you see a green traffic lights, it doesn't mean you must cross the crossroad without looking left and right roads, that's the error many people do.

  • #14
  • Sep 16, 2008 2:23pm Sep 16, 2008 2:23pm
Quoting tenantro
i'd also like to add that elliot waves are one of the biggest jokes (or slaps in the face, depends on your preference) to ever be brought into technical analysis.

i have not yet been able to identify a clear cycle in any type of instrument i tested, currency, stock etc. this can be easily assessed by calculating and plotting a power spectrum via either fourier transforms, wavelets or other methods.i pretty much get almost flat power spectrum graphs for anything i tested, which means no clearly indentifiable cycle.





of course, this would require some DSP knowledge, something which i have to assume most traders don't have, otherwise there wouldn't be so much fuss about technical indicators which are mostly digital filters of different sorts that many either don't know how to use properly, or that are completely worthless to begin with and not worth bothering with.

i really wish people would stop being lazy and instead of either choosing to blindly fall into the trap of a skilled conference presenter or continue to whine about how an indicator does not "work", they'd start studying some real science, like math, statistics, dsp and apply that to trading.


All good points. It was sad to be down there and see so many people getting duked by con artists. I tried to let as many know as possible that what they were learning was non sense

I also let the people teaching it know that it was non sense, and to stop teaching newbie traders in correct principles
  • #15
  • Sep 16, 2008 2:28pm Sep 16, 2008 2:28pm
Quoting steelhead

I also let the people teaching it know that it was non sense, and to stop teaching newbie traders in correct principles
Hopefully you managed to save at least one of them. Even if they weren't convinced on the spot, hopefully they managed to reflect on the matter more at home, take the correct decision and not jump head down to risk losing their money because of those conference marketers...

I remember reading somewhere just a few days ago that Elliot Wave International is considered the "world's largest market forecasting firm".

Can you imagine how sad that is? So many people duped into this crap....
  • #16
  • Sep 16, 2008 2:32pm Sep 16, 2008 2:32pm
Quoting steelhead
Get rid of the clutter it frees things up for you, so you can see the market more clearly.
I've got to discipline myself to keep my charts clean!

I've been around here for awhile (see post count LOL)
and have only just recently started to see through
the indicator/system smoke-screen. So much wasted
time and energy.

Thanks for the thread!

Brent

P.S. I do have one comment/observation:

It seems like when people go naked that they
automatically go for candlestick and chart
patterns. Are patterns really any better than
indicators? I doubt it. Seems like more monkey
business to me.
  • #17
  • Sep 16, 2008 2:35pm Sep 16, 2008 2:35pm
1. trader does a decision (long or short)
2. indicator gives confirmation
3. trade


not:

1. indicator does decision
2. trader react on indicator
3. trade
  • #18
  • Sep 16, 2008 2:56pm Sep 16, 2008 2:56pm
sori..im new bie here..
before this,i always trade base on indicator,
but i realy like to study fibo and to study about candle stick pattern..
can u show or teach me about that?
  • #19
  • Sep 16, 2008 3:00pm Sep 16, 2008 3:00pm
Quoting furious
sori..im new bie here..
before this,i always trade base on indicator,
but i realy like to study fibo and to study about candle stick pattern..
can u show or teach me about that?


It takes patience to learn how the market really works. I am always available to help.

you can reach me on yahoo im at [email protected]
  • #20
  • Sep 16, 2008 3:16pm Sep 16, 2008 3:16pm
Quoting FXSurfer
I've got to discipline myself to keep my charts clean!


It seems like when people go naked that they
automatically go for candlestick and chart
patterns. Are patterns really any better than
indicators? I doubt it. Seems like more monkey
business to me.

Hmm, me too share similar thoughts. I guess it is really just human nature to have a need for something to rely on, some levels, some patterns to base a trade decision upon.

How about good old chart reading ? No candlestick patterns or fancy line drawing ?
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