Advice Against Using Indicators

[ImogenBeaumont]

Hi rustic.

The shorter the better (KISS) but really depends on time-frame.

Also some folks insist on confirmation from several indicators not realising that some of these are tracking same charcteristics: repetition is not consensus.

Do you advice against using the indicators?

 

[tomorton]

Do you advice against using the indicators?

I advise against using them to pinpoint entries and exits - only as confirmation of market bias.

I advise against using multiple indicators with the false idea that this forms a strong concensus.

If a strategy really needs an indicator, that one indicator is enough.

 

[ImogenBeaumont]

I advise against using them to pinpoint entries and exits - only as confirmation of market bias.

I advise against using multiple indicators with the false idea that this forms a strong concensus.

If a strategy really needs an indicator, that one indicator is enough.

That makes sense! So, it’s better to just use one indicator for confirmation instead of a bunch? How do you figure out which one to rely on?

 

[tomorton]

That makes sense! So, it’s better to just use one indicator for confirmation instead of a bunch? How do you figure out which one to rely on?

You select the indicator most likely to be a good fit for the strategy you have selected, but there are only three common off-chart indicators - RSI, MACD and stochastic oscillator. Having done that, it is more important to continue to use that indicator with those settings than it is to continually edit it or select others for a better fit.

 

[ImogenBeaumont]

I’ve heard of RSI, MACD, and stochastic, but how do you decide which one works best for a particular strategy? Is it mostly about the market conditions, or the timeframes you're trading on?

 

[steven46]

Hello Imogen

I understand the interest in finding indicators that will help you.

What I suggest humbly is that indicators are a distraction. The tools
that actually work are based on an understanding of repetitive patterns
that occur on several time frames. As an example, I suggest you look
at whatever market you wish to trade, on a hourly chart first. looking
for the timing of price moves to various highs and lows. If you are observant
you will discover that price creates highs and lows at times that correspond
to what I call "timing windows". These windows are based on NY time (EST)


1) Asia window = 8pm to 11pm EST
2) London window = 2pm to 5pm
3) New York window = 8am to 11am

Evaluation of the way price acts during these window is step one (1) of the
process I teach. The next step is to learn to recognize specific patterns that
signal whether price is going to continue, reverse or go sideways. This is all
very basic of course. It does take a bit of time, but then it pays you back later.

Step three (3) is to learn where to enter, how to manage the trade, and where
to exit..

I hope you will consider this as a possible way to approach the markets generally
It may save you time (and money) in the longer run.

Good luck

 

[tomorton]

I’ve heard of RSI, MACD, and stochastic, but how do you decide which one works best for a particular strategy? Is it mostly about the market conditions, or the timeframes you're trading on?

All three work on all time-frames and all have adjustable periods anyway. Don't worry you might pick the wrong one, that's not how they work. Pick your strategy first and then pick an inidcator if and only if that strategy demands an esential input from an indicator. Stick with that indicator.

 

[ImogenBeaumont]

All three work on all time-frames and all have adjustable periods anyway. Don't worry you might pick the wrong one, that's not how they work. Pick your strategy first and then pick an inidcator if and only if that strategy demands an esential input from an indicator. Stick with that indicator.

Makes sense! So if someone’s strategy is purely price action—like support/resistance or candlestick patterns—would you say they’re better off skipping indicators altogether?

 

[tomorton]

Yes. On

Makes sense! So if someone’s strategy is purely price action—like support/resistance or candlestick patterns—would you say they’re better off skipping indicators altogether?

Yes. Only collect and use data which is essential to your strategy. Everything else will accumulate indecision and confusion.

 

[ImogenBeaumont]

Yes. On

Yes. Only collect and use data which is essential to your strategy. Everything else will accumulate indecision and confusion.

But what about times when price action gets noisy? Ever add a simple moving average just to filter the chaos or do you ride pure price all the way?

 

[tomorton]

But what about times when price action gets noisy? Ever add a simple moving average just to filter the chaos or do you ride pure price all the way?

Abnormal market behaviour is usually obvious from the naked price chart alone. But a MA can provide confirmation yes. And the conclusion of the on-chart MA would normally be avoid trading, whereas most new traders want to use off-chart indicators as entry and exit signals, which will work badly.

 

[RolloTape2025]

In a simple way, there is one thing that all traders care about, and that is where they entered and the profit or loss of their current position.

So price itself is the thing that everyone can see and care about, and highs and lows are something that everyone can see and care about. That is why they are so important as has been mentioned above.

When you talk about an indicator like RSI, or MACD or whatever with settings, does the 'market' actually care? If for example the market generally cared about the 200 day moving average, that would make it useful, but if you pick an indicator with arbitrary setting like RSI(14) and MACD(12,26), who is actually looking at these with the same settings as you?

Also as has been mentioned above, an indicator could be useful as confirmation of bias, a trend. They can also be useful to measure volatility, because the market can be very wild at times and calm at others.

But do not use some indicator with arbitrary settings and expect that it is a good way of understanding or trading. Traders bought at 10, the price is 9, they care about 10 and 9 (the current price), they do not care what a stochastic oscillator says about it.

Probably the best route is to remove all indicators, and in particular all indicators with arbitrary number settings.