Timeframes and indicators

[rjay]

If you are working from 30-minute candlestick charts (for example) should you ignore what an indicator is showing you until the end of that 30 minutes period ??

For example, it's 4:10 pm and my MACD is indicating a buy .... surely that should be ignored because by 4:30 (and, therefore the end of that bar) it may not be indicating a buy anymore. Correct ?

 

[SOCRATES]

If you are working from 30-minute candlestick charts (for example) should you ignore what an indicator is showing you until the end of that 30 minutes period ??

For example, it's 4:10 pm and my MACD is indicating a buy .... surely that should be ignored because by 4:30 (and, therefore the end of that bar) it may not be indicating a buy anymore. Correct ?

Yes, that is precisely the dilemma, the problem.

Indicators are fed by unfolding information.

Because of this the bar has to close for the indicator to become solidly manifest.

In many cases it is too late, and not too late in very few cases.

Another difficulty arises as to which indicator is reliable and which one is not.

Trying to assess this by following the indicator on its own is not enough or relaible, for these two primary reasons alone.

 

[sandpiper]

If you are working from 30-minute candlestick charts (for example) should you ignore what an indicator is showing you until the end of that 30 minutes period ??

For example, it's 4:10 pm and my MACD is indicating a buy .... surely that should be ignored because by 4:30 (and, therefore the end of that bar) it may not be indicating a buy anymore. Correct ?

rjay,

One of the ways round this dilemma is to reverse engineer the indicator so that you can figure out yourself what needs to happen with price/time in order to generate a signal. You can then watch price alone on a shorter time frame bearing that "signal" price/time frame in mind. There is an article somewhere in the knowledge lab on using MA's in this way (but it isn't the greatest imho). Constance Brown has a detailed explanation of doing it with stoch/rsi in one of her tombs (TA for the trading professional...) that I think describes the process better.

If you have to use indicators then I believe it is sensible to really understand what it is they are telling you. This would seem to me to be as good a way as any of developing that skill.

 

[rjay]

Sandpiper

I had a look in the K Lab but couldn't find the article you referred to - if you can remember it's title, or who wrote it, please let me know.

 

[chump]

"If you have to use indicators then I believe it is sensible to really understand what it is they are telling you" ...I'd extend that thought to encompass the notion that you need to understand when your specific indicator is telling you nothing that will be of any use to you because it is simply no good for providing filtering information for the type of market activity you are witnessing. Hence , it seems the best indicator traders combine indicators which they know work well with a specific type of market activity.
This is where the blind/mechanical use of indicators void of in depth understanding will trip you up ..and no I don't use them ..they're too late for me to be of much use although I think people who gain an intuitive feel for their specific indicator(s) also develop a skill to anticipate which compensates for the lagging effect ..most people using indicators without that level of skill will be roasted as the lagging effect impacts on transparency in the trade which in turn impacts on the risk reward rational you need to stay ahead of the game.

 

[sandpiper]

rjay,

You mean you haven't read them all .

"Predicting trend changes: The Forecast Indicator" is the name of the article.

 

[SOCRATES]

"If you have to use indicators then I believe it is sensible to really understand what it is they are telling you" ...I'd extend that thought to encompass the notion that you need to understand when your specific indicator is telling you nothing that will be of any use to you because it is simply no good for providing filtering information for the type of market activity you are witnessing. Hence , it seems the best indicator traders combine indicators which they know work well with a specific type of market activity.
This is where the blind/mechanical use of indicators void of in depth understanding will trip you up ..and no I don't use them ..they're too late for me to be of much use although I think people who gain an intuitive feel for their specific indicator(s) also develop a skill to anticipate which compensates for the lagging effect ..most people using indicators without that level of skill will be roasted as the lagging effect impacts on transparency in the trade which in turn impacts on the risk reward rational you need to stay ahead of the game.

That is right Chumpy, this is a similar argument in parallel to the use of stops.

The inexperienced traders use wide stops. The experienced traders use very tight stops.

The traders who are not experts rely on indicators. The experts, who could really make the most use of indicators, don't bother to use them.

Ironic is it not ?

 

[sandpiper]

Socrates,

"The traders who are not experts rely on indicators. The experts, who could really make the most use of indicators, don't bother to use them."

Rarely a truer word. Certainly, indicators in the hand of an expert are a different beast and more often than not used in a quite different way. I think Chartman's old dow thread illustrates this. Alas, I fear that that particular thread, like so many others of note, including your own, is destined to gather dust.

Chump. ".......because it is simply no good for providing filtering information for the type of market activity you are witnessing. Isn't that the main problem?, i.e. that people don't recognise that indicators are, as you rightly say, just filters. I have seen Indicators used successfully to highlight certain types of market activity across a broad range of equities/commodities with strict money management used to quickly cut the inevitable losing positions. I've only ever seen indicators used twice to successfully trade a single market (one being chartman and the other some guy years ago who just used a 20ema on a free data feed). In the case of the 20ema, I'm pretty sure, as you suggest, that the success was due to an intuitive feel, rather than the indicators themselves.

 

[wasp]

Agree with you there Sandpiper, Chartman used his indicators of choice very well... Worth reading through a few of his old weekly DOW threads to see.

 

[SOCRATES]

Why indicators do not work:~

They do not work because they are subject to rigid rule sets.

The market is not rigid and does not respect rules, or accepts rules imposed upon it.

There are however situations that appear to repeat themselves somewhat.

But every repetition is one of a family of repetitions.

It would require a whole family of indicators to select and identify which member of the family is in play.

As each member of the family appears additionally in different guise each time, this fact, together with the fact that markets do not respect rules, makes the excercise futile and stupid.

What is relevant however, is that the expert trader will arrive at a conclusion through understanding, which is a different route to having a set of rigid rule sets.

When this understanding is enhanced by experience, the expert trader acquires an intuitive template.

It is this intuitive template that indicators cannot replicate.

Additionally, indicators require information before they can be formed.

For this reason, indicators are confirmatory, that means the move has to be completed before the indicators can appear.

This is very interesting from an academic point of view.

But it is useless for trading because it is invairaibly too late to take advantage of something that has already developed.

Additionally, indicators are apt to act as a sort of crutch in a trader's thinking.

They are apt to plant opinions where previously none existed.

This additionally can be very dangerous.

This is because an opinion has the potential to disable reason.

When reason is disabled, logic, and the ability to act, that go hand in hand with reason, are disabled too.

For this reason indicators are apt to render the trader a disservice instead of the opposite.

There are many individuals who despite all of the above, obstinately persist in defending the use of indicators

They fall into two main categories =

!. The end user, who is either lazy or unaware or uninformed.

2. The perpetrators and stimulators of the myth, who persist with the nonsense out of self interest, to the detriment of gullible customers.

 

[dwaddell]

Hello,

No disrepect to any point of view here, but I really like indicators. Now, I'm not a professional but I'm not a complete novice either and I feel indicators give me a sense of what's going on behind all those candles, which themselves dont make much sense to me, up, down, up, down, up, down...

I use mainly larger timeframes, 4 hour for instance, where the indicators like MACD are less prone to 'is it an entry, is it not an entry' - I always wait for the candle to complete before making my judgement.

It may be that on smaller timeframes, they are less useful, but they work for me and my style.

Dave

 

[ZDO]

rjay,

re: “If you are working from 30-minute candlestick charts (for example) should you ignore what an indicator is showing you until the end of that 30 minutes period ??
For example, it's 4:10 pm and my MACD is indicating a buy .... surely that should be ignored because by 4:30 (and, therefore the end of that bar) it may not be indicating a buy anymore. Correct?”

If you are using a indicators for a disiplined system, in addition to test for various 'non-stock' parameters for an indicator, you have to test for both closed bar indicator reading as an ‘entry setup’ and/or also if indicator ‘making it to’ a certain level or pattern during the bar is a ‘setup’. All indicators WORK - some of the time. Knowing WHEN is the key rather than knowing how to read the indicator levels or patterns. Unless you can develop an indicator to indicate when to use what indicator, then you must learn how to represent the auction to yourself through price action (and inaction). Please give what Soc, Chump, and the others are saying about indicators serious consideration. Ticks and price charts are not the market – they are a faulty representations of the market. Indicators are machinations even more levels removed from the market. Although repeating, usable patterns are more 'apparent' on indicators, the auction underneath these seemingly similar indicator patterns are NOT ever repeating just as same as last time... filters is an ok word here... more like watching the action through multiple layers of opaque glass... helpful only if you need to be protected from reality or radiation. In this context; at 4:10, the MACD is really telling you NOTHING. At 4:30, it is telling you the same nothing. Step back. Is it a buy at 4:10? Period! Is it a buy at 4:30? Period!

All the best.

ZD

 

[zigglewigler]

For new traders, indicators are offered up as some sort of trigger to take a trade, so that they avoid any decision making process, if the indicator says 'go', you go!

But there is a clue in the word 'indicator'!

It's job is to indicate! Not confirm, qualify, judge or decide.

The only way I have successfully used indicators is to describe an overbought/oversold state, with my trades coming as confirmation from price and volume reversals in those extreme zones.

The decision to take a position should only come from what the price and volume are telling you.

How you assess price and volume activity is another topic altogether.

 

[SOCRATES]

For new traders, indicators are offered up as some sort of trigger to take a trade, so that they avoid any decision making process, if the indicator says 'go', you go!

But there is a clue in the word 'indicator'!

It's job is to indicate! Not confirm, qualify, judge or decide.

The only way I have successfully used indicators is to describe an overbought/oversold state, with my trades coming as confirmation from price and volume reversals in those extreme zones.

The decision to take a position should only come from what the price and volume are telling you.

How you assess price and volume activity is another topic altogether.

Yes, quite.

 

[Bigbusiness]

The traders who are not experts rely on indicators. The experts, who could really make the most use of indicators, don't bother to use them.

Ironic is it not ?

It isn't true though is it. There are lots of expert trades using indicators. Chick Goslin springs to mind but then there is Alexander Elder and Linda Bradford Raschke. This is just a few that I have read about. Mark Fisher was listed as one of the worlds top traders and he uses them.

 

[wasp]

Ricky Cheung from an interview in traders magazine recently with an immpressive S&P track record uses indicators too.

 

[SOCRATES]

It isn't true though is it. There are lots of expert trades using indicators. Chick Goslin springs to mind but then there is Alexander Elder and Linda Bradford Raschke. This is just a few that I have read about. Mark Fisher was listed as one of the worlds top traders and he uses them.

What a lot of people do not know, is that lots of expert traders have methods in parallel that they do not disclose, and therefore use indicators cynically to justify what they are able to achieve, in order not to be pestered.

The real indicators that they use are inside their heads, and very different to those displayed on the charts.

 

[Bigbusiness]

What a lot of people do not know, is that lots of expert traders have methods in parallel that they do not disclose, and therefore use indicators cynically to justify what they are able to achieve, in order not to be pestered.

The real indicators that they use are inside their heads, and very different to those displayed on the charts.

Thought I would get a reply like that. Of course there couldn't be an expert trader around using indicators. What was I thinking of? They just make up a pack of lies to sell to the public. How silly of me to think otherwise

 

[SOCRATES]

Precisely, Bigbusiness, or do you think that a top trader is going to give away his or her trade secrets in exchange for indicators, tapes, books or anything else ? Of course it is nonsense that the public ultimately misdirects itself to embrace. And so the Indicator Factory continues to churn out more and more inventions. If it were not so dire, it would be funny.

I have just thought about it, it is both dire and funny !

 

[zigglewigler]

Ricky Cheung from an interview in traders magazine recently with an impressive S&P track record uses indicators too.

Yes, but a special, that probably embraces non-conventional elements. Will cost you a King's ransom to find out too.

But again, indicators are good, if you apply them correctly as part of a system, and don't expect them to solve the immense challenge that trading offers.

If I was sent to a desert island to trade, and could take only one item, it would be a Line Break chart. I could live without the indicator. But that's just me, I'm weird.