Indicators CAN work! | Forex Factory

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Indicators CAN work!

  • #1
  • First Post: Dec 20, 2011 8:19am Dec 20, 2011 8:19am
Hi,

I've read recently a lot of threads in this forum and I've noticed that a lot of traders here think indicators are bad and cannot work in trading Forex. It seems a lot of people here are trading just price action. I can understand their arguments, but I think nobody should say "it doesn't work" when there are people who are successfully trading with indicators.

I have already live trading experience, but I consider myself still a newbie in this business. I'm successfully trading using a CCI overbought/oversold system (+100, -100) on a 4H-chart. I define the trend and filter the signals so that I trade only in the direction of the trend. And that's really all what I do from the technical aspect.

I believe that trading with indicators can work, like with every other strategy, it's about Money Management and Psychology. Of course people who take EVERY signal or get panic if an indicator doesn't behave like it "should" will fail! But it shouldn't be generalized.

I had the opportunity to learn trading with indicators from real traders, not some forum guys or internet gurus. The guys are trading for years and had success.

It's about understanding that indicators have no predictable power. They are lagging behind price and you have to know how to filter the signals!

So, let's discuss! What do you about think indicators?
  • #2
  • Dec 20, 2011 12:18pm Dec 20, 2011 12:18pm
Hello,
I agree with you! As long as one understands how indicators work and how they respond to price changes, I don't see any reason why they would not be helpful.

Obviously, considering price action is always very important, but there are indicators out there that can make it easier to make decisions because they give confirmation. One could argue that the naked graph tells everything that is needed, but I strongly believe that using indies to a healthy extent can make it easier for the eye...

Those saying that indicators should be totally neglected have SOME point, but that's just too extreme to say that.

So +1 for the use BUT not exclusive use of indicators.

Cheers!
  • #3
  • Dec 20, 2011 2:42pm Dec 20, 2011 2:42pm
I admire those who trade "pure price action". But some of us are challenged in this area and having an indicator or two can greatly improve and help some. I get irritated when price action traders bash those who use indicators or belittle them. At the same time I get irritated at those who have multiple indicators to the point that price action is all but obliterated. IMHO.
  • #4
  • Dec 20, 2011 3:24pm Dec 20, 2011 3:24pm
Indicators do work definitely. Many very successful traders use them. For example, I am a fan of Chris Capre from FxStreet and he uses indicators too, and hes very successful and also has many systems where indicators are used successfully, like MA, ichimoku, bollinger bands etc.
  • #5
  • Dec 20, 2011 3:33pm Dec 20, 2011 3:33pm
I use my dog as an indicator, he is right 50% of the time.
  • #6
  • Dec 20, 2011 3:49pm Dec 20, 2011 3:49pm
indicators do work...........evidenced by the fact that they were created for a purpose.

indicators are tools, learn to use the tools. The problem with new traders including myself when i started is that i took my entry, exit decisions from the indicator.

it was painful to say the least. I began trading in January start of the bull market, my RSI, MACD,STOCHASTICS said sell. so i sold, not the greatest of times to say the least.

that market stayed "overbought" for a long time.

i think people should really understand, what the indicators are indicating, and "overbought" "oversold" are fictitious concepts.

the reality if PRICE, anything else is just an opinion.

people use the averages to predict price= i never new a mathematical average was predictive.........it's an average, mean, mode etc. Learn statistics and then you can use your average correctly. Price never bounces of bollinger bands EVER. However do you know what bollinger bands measure? standard deviations (2) this again correlates well with statistics and margin of error, normal variance, or dispersion theories.

MACD....Moving Average Convergence Divergence, supposed to measure exponential moving averages (what are the difference between weighted, exponential, and simple?) and for simplicity sake measure the momentum of average viz a viz each other.

elliot wave, theory of impulse and corrective. What is the premise behind it? can you see the aspects that are true and the aspects that are hog wash?

many people looking at a naked chart think they are trading price, i find it quite misleading, candles are indicators, what do they measure? how can you use them to fit your approach. Do you want to trade "price action" go trade from quotes.

now do you realize that the QUOTES are the MARKET, they are the REALITY, every other study was design to MEASURE QUOTES
AVT INVENIAM VIAM AVT FACIAM
  • #7
  • Dec 20, 2011 3:55pm Dec 20, 2011 3:55pm
my a priori hypothesis on the difference between profitable and unprofitable traders is that the more experienced traders use all their tools, all their knowledge to align themselves in the right direction, you don't need to buy low, sell high, all you need to do is buy high sell higher.

either you provide liquidity for others to profit or you observe the prevalence of orders in the market.

unprofitable traders try to predict what the market SHOULD DO.

things are what they are not what you wish or think they are.

hence if you sell and most people are buying you are providing the liquidity.
AVT INVENIAM VIAM AVT FACIAM
  • #8
  • Dec 20, 2011 3:56pm Dec 20, 2011 3:56pm
Quoting the redlion
indicators do work...........evidenced by the fact that they were created for a purpose.

indicators are tools, learn to use the tools. The problem with new traders including myself when i started is that i took my entry, exit decisions from the indicator.

it was painful to say the least. I began trading in January start of the bull market, my RSI, MACD,STOCHASTICS said sell. so i sold, not the greatest of times to say the least.

that market stayed "overbought" for a long time.

i think people should really understand, what the indicators are...
What do you use to trade?
  • #9
  • Dec 20, 2011 4:03pm Dec 20, 2011 4:03pm
i use a variety of indicators, as well as the quotes.

here are the indicators i use

to study the chart

1 a chart
2 candles
3 moving average (with setting on statistical importance to assist me in MY OBSERVATIONS, hourly average, monthly average, yearly average. however i pay attention to the average price not the line
4 standard deviations to assist with normal price variation, volatility change and range (sometimes i do this by excel i do not particularly like Bollinger Bands)
Average True Range
pivot points with previous day high and low
daily open
monthly open.


now......it is not the tools you use but the questions you ask.
i have no f*cking clue what the market will do, ever.

but my question is, what is it doing right now? does it look like there is more prevalence in selling or buying? what is the probability of closing above the open. (this is the most important thing to me)

how is price of this particular candle (measurement of quote/time) in relationship to its usual behavior. How can i exploit that.

once i open a position, i always ask myself do i still want this position? has the picture change? do i add? do i liquidate?

but it is equally important to pre-define your risk parameters, when i enter the market the first and foremost is not to lose money, so i always enter close to the point where i would be wrong. The closest i enter to being wrong the less i risk if in fact i am wrong.
AVT INVENIAM VIAM AVT FACIAM
  • #10
  • Dec 20, 2011 5:19pm Dec 20, 2011 5:19pm
Quoting Forex5050
Hi,

I've read recently a lot of threads in this forum and I've noticed that a lot of traders here think indicators are bad and cannot work in trading Forex. It seems a lot of people here are trading just price action. I can understand their arguments, but I think nobody should say "it doesn't work" when there are people who are successfully trading with indicators.

I have already live trading experience, but I consider myself still a newbie in this business. I'm successfully trading using a CCI overbought/oversold system (+100, -100) on...
Is that possible for you to open a trading thread on your CCI?
Cheers
  • #11
  • Dec 21, 2011 12:34am Dec 21, 2011 12:34am
Quoting sniperfxmy
Is that possible for you to open a trading thread on your CCI?
Cheers
It's simple, I'll write it down here.

Daily chart with a 200 SMA on it -> if price is above the 200 SMA, trend is up. If price is below the 200 SMA, trend is down.

H4: Short if trend on the daily is down and CCI crosses from overbought (above 100) below 100.
Long if trend on the daily is up and CCI crosses from oversold (below -100) above -100.

Test it on your chart and see what works best for you. As risk-on pairs move similiar, I like to filter these out and take a position in the pair with the strongest trend.

Cheers
  • #12
  • Dec 21, 2011 2:08am Dec 21, 2011 2:08am
Quoting Forex5050
It's simple, I'll write it down here.

Daily chart with a 200 SMA on it -> if price is above the 200 SMA, trend is up. If price is below the 200 SMA, trend is down.

H4: Short if trend on the daily is down and CCI crosses from overbought (above 100) below 100.
Long if trend on the daily is up and CCI crosses from oversold (below -100) above -100.

Test it on your chart and see what works best for you. As risk-on pairs move similiar, I like to filter these out and take a position in the pair with the strongest trend.

Cheers
Hi Forex5050,

Thanks for your strategy. Do you use standard number for CCI 20 or another number?
  • #13
  • Dec 21, 2011 3:27am Dec 21, 2011 3:27am
do as you must but you are all missing the point.

200 sma? on what time frame

Simple Price Average= SMA (Simple MOVING= moves the average by dropping the first value and taking into account the last to arrive to a continuous average of X amount of time)

200 on a daily= 9 months roughly
200 on an hourly chart= 8 days roughly
200 on a 15 minute chart= 13 hours roughly
200 on a minute chart is = 3 hours roughly

do you know what CCI is (Commodity Channel Index) roughly calculate current average value = HLC/3 in relation to the AVERAGE price to pin point extremes in this relationship.

just like the dispersion theories, difference from average, standard deviations etc the problem is .........is it a change in direction or an extreme in normal price variance. Now by following the strategy blindly exactly what are you analyzing?



Technical analysis was made to ANALYZE price not predict, or come up with mechanical automatic ATM machine strategies that are simply fictitious, fallacious, and inane.
AVT INVENIAM VIAM AVT FACIAM
  • #14
  • Dec 21, 2011 8:07am Dec 21, 2011 8:07am
@ Ignocito: 14 periods CCI
@ Redlion: I am aware of how CCI and SMA are being calculated, but unfortunately I don't see what you are asking me? As I said I understand that indicators are following price and not predicting price, also I'm filtering those signals and not blindly following my strategy with every signal it gives!
  • #15
  • Dec 21, 2011 8:18am Dec 21, 2011 8:18am
Quoting the redlion
do as you must but you are all missing the point.
Do you have kids?
  • #16
  • Dec 21, 2011 8:25am Dec 21, 2011 8:25am
Quoting the redlion
it was painful to say the least. I began trading in January start of the bull market, my RSI, MACD,STOCHASTICS said sell. so i sold, not the greatest of times to say the least.
did you backtest the ideea first?
  • #17
  • Dec 21, 2011 9:22am Dec 21, 2011 9:22am
dopey i do have one kid, why the question?
AVT INVENIAM VIAM AVT FACIAM
  • #18
  • Dec 21, 2011 1:17pm Dec 21, 2011 1:17pm
Forex 5050, I did some brainstorming about the topic and as I mention in my earlier post I agree with you, but one thing is not clear to me is your opinion of predictive power of indicators.

Whether or not indicators have predictive power strongly depends on what we mean by prediction, doesn't it? What I'm trying to say is, if by prediction one means 'knowing what will surely happen in the future', obviously there is no indicator (technical or fundamental) to tell the future.

Then again, when you use your indicators combined with your knowledge, you try to predict where the price will move, don't you?
Why does someone go long or short after all? Because they think they know where the price will go more often than not, or obviously, they think they can grab more pips from profitable trades than what they lose from losing ones.

I totally understand that indicators are used for analising past movements, but why would one analyse them if not for trying to find out what happens next?

I am interested in your opinion!
  • #19
  • Dec 21, 2011 2:43pm Dec 21, 2011 2:43pm
Quoting Forex5050
I've read recently a lot of threads in this forum and I've noticed that a lot of traders here think indicators are bad and cannot work in trading Forex.
I haven't seen people saying quite that.

What I've seen (here and elsewhere) is a lot of people saying that indicators can't work reliably enough to give their user a genuine statistical edge over the market.

And I'm one of the people saying that.

Quoting Forex5050
I think nobody should say "it doesn't work" when there are people who are successfully trading with indicators.
I've never seen evidence of anyone trading consistently and reliably profitably over a meaningful timescale with just indicators.

And I think that's what some people are claiming is possible, isn't it?

Quoting Forex5050
I had the opportunity to learn trading with indicators from real traders
Well, my family background comprises "real traders". My father's been doing this for his living, all my life. And I've seen several professional trading floors, and so on, and whereas I admit I can't say that I've never seen an indicator anywhere, I've certainly never met a "real trader" who would describe what s/he did as coming anywhere close to what people generally mean by "trading with indicators".

And it's not something I'd dream of trying, myself.

I have a mortgage to pay.

Quoting Forex5050
It's about understanding that indicators have no predictable power. They are lagging behind price and you have to know how to filter the signals!
Well, I agree with you that indicators have no predictive powers.

And I agree that they're lagging behind the price.

And I agree that you'd need to "filter the signals" (if you think they can produce "signals").

The problem with that is that some people (clearly not yourself - this isn't an accusation!) imagine they can do that with "other indicators"!
  • #20
  • Dec 21, 2011 3:06pm Dec 21, 2011 3:06pm
Quoting the redlion
dopey i do have one kid, why the question?
Well, you know then how you can tell kids what and what not to do in their best interest, yet they still like to just find out things on their own. This is something we really never outgrow, we just learn to modify it to the point where we try not to hurt ourselves too much.

The point is you can tell people all day long what's good for them, what works or doesn't, and they're still going to do what they want to do, such as use indicators. I was just wondering why you even bother.
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