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Why Indicators will fail you

  • #121
  • Sep 19, 2008 8:19pm Sep 19, 2008 8:19pm
Quoting eagle4x
While I still believe indicators are usefull tools, Steelhead gave me more info. about his strategy and actually it is very good after he explained it in more detail. He is trading for a living and making good money, which is more than I can say for myself.
Which is why you need to keep an open mind with these sort of topics. If people have their heart and mind set on trading an indicator or two, why look for support in this thread? How steelhead is doing is also not the point. The point as already stated, indicators all look at the past to see how we arrived at the present and are mostly different types of averages. They do not predict were the creek will turn next. (Never drive across a creek with an average depth of one metre.)

If an indicator works in the long term ask yourself why there are so many of them. IMHO the only reason they seem to work from time to time (including S/R) is because the market makers want them to.
Good Trading
  • #122
  • Edited 8:46pm Sep 19, 2008 8:34pm | Edited 8:46pm
I have nothing against you steelo, I just don't think it's fair to dismiss something without justification.

Saying that technical indicators are useless without reason and it's my way or the highway is self-centred and misleading to those who don't understand why. The title of your thread reads:

"Why Indicators will fail you."

Yet, you have not even answered your own statement.

As I did in a previous thread (http://www.forexfactory.com/showpost...postcount=8928), I'll try help steelo explain exactly why some technical indicators can be misleading. Any decent TA book should tell you more about this is great detail. My wife is in early stages of labour so I'm cutting this quite short.

There are essentially two types of technical indicators. Trend indicators and oscillators. There's also predictive indicators like trend lines, fibs and elliot wave.

Trend indicators like moving averages are measuring the direction of price movement. A moving average is simply the sum of past prices divided by the number of periods that gives you a visual cue on which way the price is going (up, down or sideways).

The downside to trend indicators is that they are generally lagging, the price may be moving up when they suggest it's down. A simple moving average cross however can be extremely profitable on higher time frames in a trending market. A simple 10/20 cross on the monthly EU chart would have placed you in on the bull run that began back in 2001 and returned thousands of pips.

Oscillators like stochastic, RSI, momentum etc... on the other hand measure the speed of price movement. Their purpose is to identify the pace of market action.

What use does the pace of market moves have to do with speculating on the next direction of the market? Not much IMHO. The pitfall most beginning traders fall into is that they think when the stochastic suggests overbought or oversold, they literally think the market is overbought or oversold.

The overbought/oversold signals they produce are simply a mathematical formula of how fast the price has moved over a given time.

There are hundreds of types of these indicators, because there are a number of parts of the price they can draw conclusions from (open, high, low, close).

Are they completely useless? Not at all. The clear divergence on the EU back up at 1.60 was great for getting in on a massive move down. Divergence on the geppy would have returned a couple thousand pips once confirmed. As I mentioned above, a simple MA cross can still be profitable.

Unfortunately no method or system out there is a sure fire way of predicting the market's every move. Bottom line is at times price action fails, candle stick patterns fail, divergence fails, trend lines fail, fibs fail, MA's fail, elliot waves fail, they all fail at some point.
  • #123
  • Sep 19, 2008 8:36pm Sep 19, 2008 8:36pm
Quoting aud
If an indicator works in the long term ask yourself why there are so many of them.
Because human nature does not like simple. They think they can modify and refine things in attempt to make it right all the time.
  • #124
  • Sep 19, 2008 8:39pm Sep 19, 2008 8:39pm
Quoting merlin
its almost impossible for a novice to come up with a good premise because they dont understand whats going on behind those little candles. instead they look at the candle itself, just seeing the surface, and making little patterns in their head or with a computers. but behind the candle is where the magic is, thats where the people are. i call it "the human element". the best premises i have ever traded are rooted directly in human nature. humans are predictable to some extent, and herds of humans are even more so. if you can come up with a premise based on human observations (in regard to trading and the markets, not talking vodo crap here), and then the data tells you its legit, chances are you got winner on your hands.
Just pure gold
  • #125
  • Sep 19, 2008 9:30pm Sep 19, 2008 9:30pm
Quoting NuckingFuts
Just pure gold

First of futs congrats on your new addition my wife is pregnant as well.


When you get the time I would be happy to go over a more detailed reasoning for my thoughts that inicators are garbage.


I will leave you with one thing i think. Indicators are to subjective.

Anyways congrats again lets talk next week.

Congrats to eagle on making 150 pips of one trade after our two nights of long conversations on yahoo im

Great Job eagle
  • #126
  • Sep 19, 2008 9:46pm Sep 19, 2008 9:46pm
Quoting steelhead
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 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.

......
Reading a chart, price action and looking behind price.

Where? How?
  • #127
  • Sep 19, 2008 9:51pm Sep 19, 2008 9:51pm
Quoting endroute
It constantly amazes me how people feel the need to start threads bashing how others trade and say ..........
Agree 100% and oh BTW the answer why so many were led like sheep to vote for Dubya is 4 words.........Al Gore, John Kerry.

  • #128
  • Sep 19, 2008 9:54pm Sep 19, 2008 9:54pm
Quoting steelhead
First of futs congrats on your new addition my wife is pregnant as well.
And same to you mate, hope all goes well.

My wife's water broke a couple of hours ago and her contractions have started.


Quoting steelhead
Indicators are to subjective.
Yes they are, the settings that can be used is endless.
  • #129
  • Sep 19, 2008 10:26pm Sep 19, 2008 10:26pm
I have to disagree,

I have a prime case for you. Phillip Nells 4 Hour MACD method that works and that uses indicators.

It all depends on the rules you use to trade with them. You can broke just as fast trading naked if you have no idea or plan to trade.

I use a MACD based of what I learnt from Phillip Nell. I use it conjunction with price pattern rules, but the MACD pattern is the main entry indication.

I have two methods that run on a MACD both are profitable.

Some points raised here are excelent, there is no perfect indicator nor can u trade only off them you have to incorporate the pattern of trend. Or as Phillip calls market rhythm.

I do agree to many people place to much hope on Fib levels I would never trade off a fib level on it's own. to me they're nothing more then a guide.

Cheers and great thread.

Attached are my systems.
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  • #130
  • Sep 19, 2008 10:46pm Sep 19, 2008 10:46pm
Quoting >Apocalypto<
I have to disagree,

I have a prime case for you. Phillip Nells 4 Hour MACD method that works and that uses indicators.

It all depends on the rules you use to trade with them. You can broke just as fast trading naked if you have no idea or plan to trade.

I use a MACD based of what I learnt from Phillip Nell. I use it conjunction with price pattern rules, but the MACD pattern is the main entry indication.

I have two methods that run on a MACD both are profitable.

Some points raised here are excelent, there is no perfect indicator nor can u trade only off them you have to incorporate the pattern of trend. Or as Phillip calls market rhythm.

I do agree to many people place to much hope on Fib levels I would never trade off a fib level on it's own. to me they're nothing more then a guide.

Cheers and great thread.

Attached are my systems.


Just be careful man I know Phil Nell just be careful. Professionals also look at mac d on all time frames they dictate the market not Phil Nell or mac d
  • #131
  • Sep 19, 2008 10:51pm Sep 19, 2008 10:51pm
Hi, indicators is quite useful for EA programmer.

When combine indicators + good system, I believe it can be profitable.

I've done a lot of testing EA and still trying for best one.

Up to now, I found one indicators that combine with my system, tested daily from Jan08 up to today(Sept19) had gain daily profit every days except for
only 3 days so far.
  • #132
  • Sep 19, 2008 11:15pm Sep 19, 2008 11:15pm
Quoting steelhead
Professionals also look at mac d on all time frames they dictate the market not Phil Nell or mac d
Agree with you there great point.

That's why I only trade when the real money in the market from Paris open to middle of us session.

Cheers for you reply.
  • #133
  • Sep 20, 2008 12:05am Sep 20, 2008 12:05am
Steelhead and I may not agree about the usefulness of indicators, but I have kept an open mind and he showed me his strategy even with my critical posts. Many people would not have done that, so I am grateful to him and during the process we became friends.

You said to keep an open mind, but your conclusion is close minded. Money Makers do not control if indicators work or not. What controls if an indicator works is dependent upon the traders that use them - entry, exit, stop, etc.


Quoting aud
Which is why you need to keep an open mind with these sort of topics. If people have their heart and mind set on trading an indicator or two, why look for support in this thread? How steelhead is doing is also not the point. The point as already stated, indicators all look at the past to see how we arrived at the present and are mostly different types of averages. They do not predict were the creek will turn next. (Never drive across a creek with an average depth of one metre.)

If an indicator works in the long term ask yourself why there are so many of them. IMHO the only reason they seem to work from time to time (including S/R) is because the market makers want them to.
  • #134
  • Sep 20, 2008 3:25am Sep 20, 2008 3:25am
Ok.
Good Trading
  • #135
  • Sep 20, 2008 10:16am Sep 20, 2008 10:16am
Quoting eagle4x
Steelhead and I may not agree about the usefulness of indicators, but I have kept an open mind and he showed me his strategy even with my critical posts. Many people would not have done that, so I am grateful to him and during the process we became friends.

You said to keep an open mind, but your conclusion is close minded. Money Makers do not control if indicators work or not. What controls if an indicator works is dependent upon the traders that use them - entry, exit, stop, etc.

Eagle is a good guy although we disagree about alot of things. Market movers do dictate wether your indicators will hold or not. market movers dictate everything. News doesnt dictate the market, market movers do. Learn how to think like them. When I learned how to think like them my trading went to the next level.


Longterm success in the market demands that you learn these things. If you don't its a long swim upstream against a powerful current.
  • #136
  • Sep 20, 2008 10:26am Sep 20, 2008 10:26am
I prefer the Tom Demark approach to look for indicator failures and trade against them because as he says, when they fail they fail badly. As an example trendline failures.

But market makers trade how they trade and don't care what the small guy is using so they don't consciously trade against indicators since they don't even look at them themselves.
  • #137
  • Sep 20, 2008 11:29am Sep 20, 2008 11:29am
Quoting SunTrader
I prefer the Tom Demark approach to look for indicator failures and trade against them because as he says, when they fail they fail badly. As an example trendline failures.

But market makers trade how they trade and don't care what the small guy is using so they don't consciously trade against indicators since they don't even look at them themselves.

Why do some of you insist on saying the market makers don't care what the small guy is doing? That statement is totally and uterlly false. They do care what the small time guy is doing cause a herd of small time guys doing the wrong thing is very profitable for them. It just fathems me that some in here don't think they care or know what you are doing.

Maybe this is why many folks fail at this market because they dont think it is manipulated by the market movers. Until you start understanding this is will be a tough road. They do care what you are doing and the indicators you use, and they know exactly how to create the conditions in the market to get you on the wrongside of the trade. They want and will take your money. When you trade the same way everytime with same indicators, and stops to tight you make it easier for them to take your money. You might as well just mail them the check.
  • #138
  • Sep 20, 2008 11:36am Sep 20, 2008 11:36am
I think this is all non correct, market makers follow some rules, that maybe are in-fact the market-rules.

If somebody don't understand these rules, and trade against the rules, and get wiped out, it doesn't mean that he lost because market makers trade against him, in fact, it's he that trade against market makers/movers.

What i'm trying to say, is that market follow some basic repeated rules, day after day, year after year. It cannot trade against you, it just follow his path, and really don't care about you. If you trade against it, you will get wiped out.

nothing of more simple.
  • #139
  • Sep 20, 2008 5:09pm Sep 20, 2008 5:09pm
Quoting steelhead
Maybe this is why many folks fail at this market because they dont think it is manipulated by the market movers. Until you start understanding this is will be a tough road. They do care what you are doing and the indicators you use, and they know exactly how to create the conditions in the market to get you on the wrongside of the trade. They want and will take your money. When you trade the same way everytime with same indicators, and stops to tight you make it easier for them to take your money. You might as well just mail them the check.
One of the many reasons why small "traders" (in quotes on purpose, because many who think are, are the furthest thing from being a trader) is because of their focus on the market makers screwing them, running their stops, shutting them out on news spikes, wide spread during slow trading hours.

The line in bold I agree, but again it has nothing to do with them watching what the little guy is doing as regards indicators.

They are far too many indicators and variations for them to concern themselves with. How would they have the time watch what they watch.

Believe what you want. Believe that indicators in the right hand in the right cicumstances suck. Believe that George Soros looks at Stochastics to see whether he can beat me or you plus 1000 others. Plain and simple I don't.
  • #140
  • Sep 20, 2008 5:11pm Sep 20, 2008 5:11pm
Quoting tunera
I think this is all non correct, market makers follow some rules, that maybe are in-fact the market-rules.

If somebody don't understand these rules, and trade against the rules, and get wiped out, it doesn't mean that he lost because market makers trade against him, in fact, it's he that trade against market makers/movers.

What i'm trying to say, is that market follow some basic repeated rules, day after day, year after year. It cannot trade against you, it just follow his path, and really don't care about you. If you trade against it, you will get wiped out.

nothing of more simple.
Well said.
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