I just wanted to share something with you…
When you get into trading, you’ll come across 100’s and 100’s and 100’s of technical indicators and EA’s. Many will appear sophisticated, complicated, scientific or even kind of sexy which gives the impression that they are the one piece missing you’ve been searching for to create your perfect system.
It’s so easy to fall down the rabbit hole looking for the best indicators… It’s also kind of fun 🙂
There are basically 3 categories of technical indicators.
1. Trend based: These would include moving averages like simple moving average, exponential moving average weighted moving average etc.
In a nutshell these work great for strong trending markets but totally unreliable in choppy markets.
2. Range based: These are things like stochastics and RSI.
They work good at calling tops and bottoms in a range bound market but fall apart in strong trends.
3. Volume based: These measure the volume which is supposed to reflect the buyers and sellers and who is in control.
I’ve spent hundreds of hours studying and using a $2000 volume based software and can tell you it didn’t give a consistent edge to my analysis. For every time it gave me an amazing read on the market, there was another time that it was completely off base.
If your like me, you’ll obsessively go through every indicator provided in your trading platform looking for “THE ONE”.
To take it one step further… There is a perception among traders that there is some magic proprietary setting on an indicator that unlocks a flood of pips.
HERE’S THE TRUTH…
Despite the hype, there is no magic setting. (God knows I’ve searched for it and spent 1000’s doing so.)
Let me give you an example…
Take a exponential moving average. (E.M.A.) For years a 34 setting was popular and then I started to see 35 being used and then someone says 36 is the way to go.
The reality is that none of these are better than the other. They are all so close together that you could trade equally well with either of them.
Why do I bring this up? Because its easy to fall into the trap when some trading guru tells you that that changing a moving average from 34 to 35 is the secret or that any setting is “The One”.
I’ve seen all these moving averages used… 1, 3, 5, 8, 10, 12, 13, 20, 21, 34, 35, 36, 50, 55, 89, 100, 133, 289, 200, 233, 362, 633…
The thing is all of them can be used and all will work equally well depending on market conditions and the strategy.
The interesting thing is that each of these has it’s own fan base to it’s tempting to always be wondering about what the other person is doing.
Another example of this would be… Someone says that an exponential moving average isn’t as good as a linear weighted moving average.
The only difference in these is that the linear M.A. won’t lag the market as much and at times track the market better but… There will be plenty of times where the exponential M.A. actually had better trades even though it lags the market a bit more.
I’ve known people with 1000 to over 3000 indicators on their hard drives that they pulled off of trading forums and purchased and yet they still struggle.
Surely if there was a “Magic Indicator & Setting”, these traders would have found it and making the big $$$ by now.
The thing to understand is that indicators are a simply a tool that when combined with price action can give you extra clarity on reading the charts correctly.
My hope is to get you to see that simple is the best and to stop chasing “The Holy Grail”.
WANT TO KNOW A SECRET?
The big institutional traders ignore almost all of the fancy indicators that the retail traders use. They look at only a few technical indicators and concentrate way more on specific price points in the markets. These are where the big moves happen.
In the coming weeks I’ll be teaching a workshop on this and will fill you in soon…
I hope this gives you some food for thought…