indicators - magic tool or NOT? | Forex Factory

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indicators - magic tool or NOT?

  • #1
  • First Post: Apr 18, 2012 2:09pm Apr 18, 2012 2:09pm
hi everyone,

its a question about indicators, and please i would like your comments here....

are indicators really a reliable source or not for trading - do they give solid information about the next move of price. OR are we living in a dream world that indicators do actually help traders (us retail traders) in forex.

the way i see it, is that indicators can help less than 50% of the time and price action together with support/resistance and strong trend movements.

please share your comments

cheers

sam
  • #2
  • Apr 18, 2012 3:43pm Apr 18, 2012 3:43pm
Quoting sami29uk
hi everyone,

its a question about indicators, and please i would like your comments here....

are indicators really a reliable source or not for trading - do they give solid information about the next move of price. OR are we living in a dream world that indicators do actually help traders (us retail traders) in forex.

the way i see it, is that indicators can help less than 50% of the time and price action together with support/resistance and strong trend movements.

please share your comments

cheers

sam
Thumbs up on starting this thread Sam, many people wonder a lot about indicators. There are loads of indicators out there (the common ones) some people even make their own indicators. However I think it must be noted that almost all indicators use past price data to try to predict the future, so yes there is no indicator that is 100% reliable.

I think there are different indicators people use for different kinds of trading, example if you're a scalper (looking to take a few pips in every trade) then you may rely on totally different indicators then if you were say a breakout or trend trader.

The most important thing you need to know is market fundamentals and price action, as you said, support and resistance is very important, what the general trend and market sentiment, is also really important. Indicators can be very helpful, but they do have their own perils, some repaint, some lag, and some are downright wrong. But I think that they do help in timing your entries and exits, many people may use a combination of indicators to plan their trades, very few people use just one indicator to base their trades on.

If you want to use indicators then I think you should start with the most common ones like RSI, Stochastics and Moving Averages before moving on to more complicated indicators.

Also candlestick patters, seem to be quite helpful, although not conventional indicators they help give a deeper view to price action.
An investment in knowledge pays the best interest - Ben Franklin
  • #3
  • Apr 18, 2012 6:48pm Apr 18, 2012 6:48pm
I don't 'make many posts on here but I think this one may serve someone some benefit and save someone some time in the future.

First abi2712 I am going to add to some of your comments then add a little more.

Quoting abi2712
However I think it must be noted that almost all indicators use past price data to try to predict the future, so yes there is no indicator that is 100% reliable.
OK this is a good start. However this is where most new traders fail. They fail to realize that indicators are created from historical time based price data set to a users parameter. They are not meant to predict the future they are meant to assist a trader with filtering trade signals and add confidence to trading decisions.

Quoting abi2712
I think there are different indicators people use for different kinds of trading, example if you're a scalper (looking to take a few pips in every trade) then you may rely on totally different indicators then if you were say a breakout or trend trader.
Yes and no. Yes Indicators are a personal preference tool. But no it's not that a scalper will use different indicators than a swing or breakout trader, it's more that they will tend to use the indicators in a slightly different way based on their trading style.

Quoting abi2712
Indicators can be very helpful, but they do have their own perils, some repaint, some lag, and some are downright wrong.
This is a true statement but a word of advice would be to stick to the basics.

Quoting abi2712
But I think that they do help in timing your entries and exits, many people may use a combination of indicators to plan their trades, very few people use just one indicator to base their trades on.
OK there are a ton of traders who base their trading decisions on price alone. And there are many traders who use only 1 or maybe 2 indicators. Use whatever helps you see the market clearly and allow you make non-conflicting trading decisions. Don't get sucked into loading your charts up with a ton of indicators. Start with nothing but a naked chart, watch price and just see how it moves to get the basic idea of how the market naturally moves. Then if you want to add an indicator add one and see how the indicator acts during different stages of price activity.

Remember this - indicators lag because they are based on historical price data. They will always be a step behind. If you use and indicator to filter trade signals for entry or exit, you had better come to the realization that you are going to miss some moves in the market and be OK with that. Don't go tweaking the hell out of your indicator to try and catch every stinking move! You will become frustrated, spend hours and hours trying to perfect something that cannot be perfected and you will likely lose more than you win in the end. Which will turn into the endless search for a better indicator to help you catch "The Big One" every time.

You can make a killing in the market taking little chunks out of the market over and over again. You don't need to catch every move.

Quoting abi2712
If you want to use indicators then I think you should start with the most common ones like RSI, Stochastics and Moving Averages before moving on to more complicated indicators.
Smart advice here but remember to not add a bunch of indicators. Additionally do not use indicators which do not compliment each other. You will find yourself confused and hesitating on trading decisions. Keep it simple!

Quoting abi2712
Also candlestick patters, seem to be quite helpful, although not conventional indicators they help give a deeper view to price action.
So in reality a 30 min candle stick is a lagging indicator. It takes 30 min'tes for it to complete which in the end could be one of the many candle stick formations used for trading. But in order for it to complete price had to move from point A to point B which could have been 30 pips. So 30 pips have passed you by while waiting for your indicator in this case price to confirm direction and or entry.

don't get me wrong yes price action is the way to go in the end but sometimes you have to think a little deeper to get a deeper understanding

Just keep in mind an indicator is a tool to assist you in making a trading decision. The key word there is assist. Indicators are used to add clarity.

Hope this helps.

Cheers!
Nothing is impossible, with a willing mind!
  • #4
  • Apr 18, 2012 7:58pm Apr 18, 2012 7:58pm
Indicators, contrary to popular belief, are not a stand-in for a crystal ball - at the most, they can indicate the direction of the market and pivot points. Yes, a few indicators do make the news but more often than not, it's all hype.
Indicators are useful but it would be a mistake to solely depend on them..
  • #5
  • Apr 18, 2012 8:26pm Apr 18, 2012 8:26pm
The question you need to ask yourself here is 'does this make any sense', if we take the RSI and look at the way it is calculated, what does this have to do with the market we're trying to trade or the effect we are trying to capture? What does it mean? If you can't answer these types of questions in a meaningful way, it's probably not a 'magic tool'. There are also a million threads addressing this very subject, you'd probably do well to read them before starting yet another thread on the same subject, or is that too much work?
The breaking of a wave cannot explain the whole sea.
  • #6
  • Apr 19, 2012 3:50am Apr 19, 2012 3:50am
thank u guys for ur input, i know one trader who uses (wait for it) 34 indicators on one chart!!! yes 34 indis!!! (he makes good money with it)....i find it really confusing as what the hell is going here. what i realised in the past two years of my learning curve is combination of indicators (as an assisted tool - not a decision tool) and Price Action together like i said before support/resistance (or demand/supply), trendlines etc...naked charts helps alot also. And most importantly also is psychology (your mindset)

at the moment i'm trying to identify what sorts me as a trader, i think personally technical and fundamental analysis plays a key role combined...using economic data together with technical data. and yes you can catch strong moves with using support/resistance, price action,, trendlines (using the longer TF) But as for indicators as you say they are lagging (based on historical data-the past).

So one has to think here are indicators are useful tool?, in some circumstance yes they may be BUT to limitation...don't rely on indicators all the time..i see many good traders come up systems here in the forums using indicators...i watch and watch then boom the system fails or does meet the criteria (i dont know thats just my view).

we all know there is no holy grail in forex BUT what we can do is consistently, patiently, with discipline take profits...yes with losses at hand as well but hey thats life..

thank you again

sam
  • #7
  • Apr 19, 2012 4:39am Apr 19, 2012 4:39am
what would be your taste, check the screen shots below

http://my.jetscreenshot.com/7975/20120419-6az9-204kb


or this


http://my.jetscreenshot.com/7975/20120419-ieiu-236kb
  • #8
  • Apr 20, 2012 12:29pm Apr 20, 2012 12:29pm
So the trader was using all 34 indicators and he was still making good money..think the million dollar question would be "How?"
Would really like to know how me mushes past the 34 indicators and all..
  • #9
  • Apr 20, 2012 3:01pm Apr 20, 2012 3:01pm
Craig nailed it.

I use indicators and use them successfully.
It also does not matter how many or which ones you use. The ones you choose you should know so well, you practically see them in your sleep. They should be used by you, not because you read it somewhere, someone told you about it, or because you learned it at a seminar. You should use them because they are a personal conviction to you. You have absolute confidence in them because they have proven themselves as such to you. If you can be swayed, then the indicator has not become personal enough to you.
I use the ichimoku cloud, stochastics, standard deviation channel, TL's, price action, and my pride-n-joy, a proprietary set of mathematical S&R's. It's impossible for anyone to convince me anyone of them does not work, and I'll prove that once I open my thread.
OTOH, everything might be pure junk to you. It's personal! You have to align your strategy accordingly.


Quoting Forexnuts
So the trader was using all 34 indicators and he was still making good money..think the million dollar question would be "How?"
Would really like to know how me mushes past the 34 indicators and all..
  • #10
  • Apr 20, 2012 4:31pm Apr 20, 2012 4:31pm
Quoting 4xpipcounter
Craig nailed it.

I use indicators and use them successfully.
It also does not matter how many or which ones you use. The ones you choose you should know so well, you practically see them in your sleep. They should be used by you, not because you read it somewhere, someone told you about it, or because you learned it at a seminar. You should use them because they are a personal conviction to you. You have absolute confidence in them because they have proven themselves as such to you. If you can be swayed, then the indicator has not become personal...
Very well said! I think and experienced it the same way!

A trader should really feel confident with his indicator and know how it behaves. I use Ichimoku too myself, I realize that to other traders an Ichimoku chart may look like hardcore chart porn but too me it looks confident and trustworthy, hence I feel comfortable using it as my own strategy, rather than copying another bunch of indicators.

BT
  • #11
  • Apr 20, 2012 10:03pm Apr 20, 2012 10:03pm
I struck up a friendship with someone who had an excellent web site on the ichimoku. Because of the friendship, I invited him to a chat room to present it to my people there. I had no interest in the ichimoku, but when it was all said and done, I was he only one that got hooked. As time went on. I personalized the usage more to my liking, and it is the cornerstone of my methodology.


Quoting BataviaTrade
Very well said! I think and experienced it the same way!

A trader should really feel confident with his indicator and know how it behaves. I use Ichimoku too myself, I realize that to other traders an Ichimoku chart may look like hardcore chart porn but too me it looks confident and trustworthy, hence I feel comfortable using it as my own strategy, rather than copying another bunch of indicators.

BT
  • #12
  • Apr 21, 2012 10:51am Apr 21, 2012 10:51am
Quoting 4xpipcounter
I struck up a friendship with someone who had an excellent web site on the ichimoku. Because of the friendship, I invited him to a chat room to present it to my people there. I had no interest in the ichimoku, but when it was all said and done, I was he only one that got hooked. As time went on. I personalized the usage more to my liking, and it is the cornerstone of my methodology.

hehe..good story. Your friend's name happen to be Patel? He's big on Ichimoku these days. I bought his book too.

BTW, do you upload trading vids on youtube? I would be interested to follow your steps, there's so much for me to learn.
  • #13
  • Apr 21, 2012 6:14pm Apr 21, 2012 6:14pm
Let me know once you have posted your thread and glad its working for you. On strategy and indicator[s], the trader must use the ones he is familiar with rather than opt for the most popular one on the block..it all comes down to personal preference, from the number of indicators to everything else.
  • #14
  • Edited 4:44pm Apr 23, 2012 4:06pm | Edited 4:44pm
No, this guy's name is not Patel, and he does not write books. He financed his site solely through his trading, which is another reason I respected him so much.

I do not do training videos. I guess the op would not mind if I post some charts here to show how I use the indicator.


Quoting BataviaTrade
hehe..good story. Your friend's name happen to be Patel? He's big on Ichimoku these days. I bought his book too.

BTW, do you upload trading vids on youtube? I would be interested to follow your steps, there's so much for me to learn.
  • #15
  • Apr 23, 2012 4:48pm Apr 23, 2012 4:48pm
Forexnuts, good point!
Trading is very personal. This includes the indicators and how you use them. Others like to trade pure price action. It is a matter of finding what's best fits your personal trading.


Quoting Forexnuts
Let me know once you have posted your thread and glad its working for you. On strategy and indicator[s], the trader must use the ones he is familiar with rather than opt for the most popular one on the block..it all comes down to personal preference, from the number of indicators to everything else.
  • #16
  • Apr 23, 2012 5:05pm Apr 23, 2012 5:05pm
Notice on the chart the candle behavior with the clouds once entered, then where it heads. The rule is when they enter atone end they will at least touch the other end.
There is also a way to trade the exception, but for now, I won't get into that part of it.
The real point I wanted to get into is how the ichimoku shows, in advance, the trend. After all that is what we always look to trade.
Look to the west and notice the encircled area. Once the candle bridged the tenken and kijun. Price action was still above the cloud after the cross, but both were closely on the trail of the candle. Eventually, the price popped out of the cloud to the north, but was still contained under the cloud. The irony is that right before the rejection candle is when the real trading opportunity happened. The candle fell through the bottom of the cloud while still under both the tenken and kijun which signals going short. The point I'm looking to go short if I jumped out at the rejection candle was when price came back down and closed under the cloud, tenken and kijun.


http://s7.postimage.org/5ygb384q3/image.gif
adult image hosting
  • #17
  • Apr 23, 2012 5:11pm Apr 23, 2012 5:11pm
The ichimoku cloud is actually 5 indicators in one-- tenken, kijun, chinkou, A kumo, B kumo.
They are all highly significant, and when used as a confluence it is a highly powerful indicator.
I don't want to just take over, or bore anyone. With the op's permission, I'll continue. There is so much to learn about this indicator. The guy that introduced it to me 5 years ago uses it as a standalone. His idea was that you have a 5-in-1 indicator. How many more do you need?
There is also sound logic behind why the default settings are 9,26,52. Needless to say it all has to do with the mathematics of it.
  • #18
  • Apr 23, 2012 5:31pm Apr 23, 2012 5:31pm
I wanted to bring your attention to the stochastics. It is proof that it is a matter of knowing how to use indicators rather than blaming the fact they do not work.
Stochastics is an indicator you con't trade just because you get a crossover (All oscillators are like that.). You have to use it as a confluence with other indications, as well as other time frames. What we have currently is a double divergence, but not even that means it is time to short the pair. What indicates it is headed south from current level is the weekly shows a strong R was you get close to 1.6150. Now you look at the crossover and the divergence and say, "Okay, now this pair is ready to go south."
As added confluence we can look at this TF and notice how far the candle has drifted away from the cloud. Price action has to pull back to the cloud once it drifts that far from it. The cloud is a measure of equilibrium. Price has to gravitate towards equilibrium. So another thing to do is wait for price to drift so far from the cloud, check for confluences, then enter accordingly.

http://s14.postimage.org/m816hjq8x/image.gif
free picture hosting
  • #19
  • Apr 23, 2012 5:36pm Apr 23, 2012 5:36pm
Another thing I should have pointed out from the previous post is to watch the price once that purple line is broken. It marks the swing low, and it is also a 1-2-3 pattern. When a 1-2-3 forms going the opposite way, once the 2 is broken, be ready for a powerful move. Combine all this with the TL, Price will break the 2 and the TL at the same time, so it will add fuel to the move.

BTW, this is not stuff in the rearview mirror or a bunch of conjecture. This is live price action showing in advance what will happen.
  • #20
  • Apr 24, 2012 4:27am Apr 24, 2012 4:27am
hello guys

ok, here is my friends 34 indicators with template...those who enjoy indicators, enjoy....like i said if u r familiar with indis, then this template or indis will be useful....please don't ask me about the details of the method but if u r good with reading indicators then u can suss out the system. it works in all TFs, recomended is 15min and 1hr TFs

and please, please comment and share anything that u might think is relevant.


sami
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