Reliance on indicators, or not

A lot of traders, especially new ones, put a lot of trust in indicators thinking that prices would go and go directly to where the indicators say they should. A lot of traders believe that indicators can forecast the limits of behaviour. Traders believe that indicators can tell them what is reasonable or what is predictable based on the past.

The market as a whole is not reasonable; prices are set by traders, traders are impressionable and imitative, they are herd animals and follow the crowd either up or down, identifying the direction of the crowd is key; follow the dust trail, the noise of the stampede.

Prices and spreads vary they are not an arithmatic concept and fluctuate based on the societies they represent, Euro, USD, JPY etc.

Uncertainty is an indefinite condition, it does not follow indicators, it cannot be calculated.

A good dose of self doubt and perspective needs to check the indicators and what it is telling us before a trade is placed.

Even when traders get things right, prices cannot be expected to oscillate with precision of Elliott Waves or follow fib or trend lines precisely.

Today's prices cannot be inferred by yesterday's trend and data alone; trading should be a "whole" concept where all information is taken in by us the traders and a decision is made based on our interpretation of data.

A good trader is intuitive, using technical data, fundamentals and his "gut", his experience to enter and exit a trade succesfully.

Keep it simple, a few indicators that work for you (knowing their limitations) a TF and pair that you are comfortable with and have studied, one eye on bloomberg/yahoo/cnbc/bbc/ft/wsj, a good understanding of Price Action, risk vs reward, money management, lot sizing, support and resistance, trend lines, and off you go.


My 2 cents

Good post, and may I add that I believe we all share a similar sort of nature, especially when starting out in trading, to have some faith in an array of indicators which are merely scripts written by other coders and shared with the public domain, either by default in mt4 or custom and found in forums etc.

However we keep at them, hoping they can tell us more than we can ever perceive alone, and never truly delve into finding out exactly what they are, and how they work. Then the few of us that do, realise that they are simply a fallocy - they can either a) analyse historical data with such potence to tell us to enter with the trend, with no regards to how long the trend will last, or b) manipulate the latest trend into telling us that the rally or dip is now exhausting, and a reversal is likely. Literally put, picking tops and bottoms.

But, logically speaking, can any code ever tell you something so important more accurately than your eyes and your mind can?

All I mean is that if we questioned the ins and outs of everything we utilise before we apply them, we would progress much faster with our trading.

If there are people who think this way, well, that is just plain weird. I know there are FIBS people (an indicator you mention) out there who may actually buy into this, as direct price levels are mapped out, what they think is happening the other half of the time has me clueless though? How can an indicator tell anyone where something will go? Ultimately, if you draw enough lines on a chart, something is going to "break" or "support" or "cross", whatever. Seeing these "phenomenons" will always send people into wild goose chases with the only exit being at the opposite end of a room full of mirrors... and the exit turns out to be where they came in at.

Indicators or "naked", it means very little in my examination of the markets the last five years. Either way a person needs to learn how to actually trade with what is being observed and felt, which will generally be quicker if people, like you state, keep it straight forward and simple. I use one MA, probably always will, I didn't always, and I never gained with a mess.

I will never question a person's use of indicators, so long as they understand what they are and how they should be used, which isn't as a translator to tell one what the market is doing.

I like your post

Yeah, exactly, and some timely approach to boiling down all this data so one puts in a good trade.

Indicators are more often oscillators, which complement trendlines / s/r lines.

great posts,,,
agree with cloggie

Yay, Cloggie is back. I'm no ass-kisser, but there aren't too many successful traders willing to help other people make it in the business, without wanting anything in return (not even recognition).
So yeah, as a newbie, I really appreciate these reminders.

Yup! That sounds about right, did review a couple of threads where the newbies wanted to know if using all the indicators on an MT4 platform was a done deal?
Either way, Thanks Cloggie,

Yeah, if only this was a new thread. This dates back over 3 years.

Cloggs said that if you are going to use an indie you have to know it inside-out (how it's calculated, why it was created, it's limitations, etc.) and know why it adds to your trading.

Focus on price and what moves it.

http://kreslik.com/forums/userpix/10...otivator_1.jpg

Thanks for the JPEG, that just made me laugh out loud..lol

haha I love those photos with the captions below.

I discarded indicator in my trading decision after just 2 months of my newbie trading time. I feel lucky I left them early!

Moral of the story, use less and net more $$$$

I usually advocate against the use of technical indicators. But over the years, I've realized, what works for some will not work for others.

If indicators help traders make enough of an informed decision on a trade and has been doing so successfully, then who am I go against what's working for them?

Use what ever help you make consistent gains.

I know professional traders (commodities, equities) who uses the likes of MACD, Stoch and/or RSI (to name a few) who make very good living with these tools at their disposal.

I don't think cloggie is neccisarily back because his post was made in nov 2009.

I do think elliott wave analysis for determining the stages of a trend is ridiculously accurate. Or perhaps I have not seen enough trends to see it fail.