Why technical indicators don't always work

[Neoripley]

good insight Neoripley.

The logical conclusion would be to ditch indicators and rely on Suppport and Resistance, as the areas of action occur at a specific price-range, irrespective whether that rnage was reached after 1 day or 3 days?
thus the price point is more reliable than indicators that need time as a component, as the same indicator over 1 day will give a different signal if stretched over 3 days, but the price-point (Sup/Res) will always be truer?

EDIT: or maybe Point and Figure charts more reliable?

Yes exactly. Unless you can adjust the parameters of the indicator to cater for the current market conditions as they occur. The trick is finding a benchmark against which to tune the indicator. Point and figure would probably also be more reliable when applying indicators over different time frames. Can you apply math indicators to a P&F chart though? Personally, I'd find it hard to ditch candlestick or line charts for P&F. Besides, you can pretty much 'overlay' a P&F chart onto a normal chart with a couple of dynamic lines.

 

[tenbobtrader]

"Any trading system that is not 100% undeniably controlled by some mechanical means or fixed rule in every single aspect of its existence is judgemental in some way, no matter how small

Any system with a judgemental component will work better for the system developer than for some random person who buys it and puts it into action. The only way to profit from a system in the same way as the developer is to take the same signals that the developer takes, and exit when the developer exits

Any technical or fundamental indicator that generates good signals less than 80% of the time is unreliable and therefore useless as a standalone trading system

Most technical indicators generate good signals far less than 80% of the time"

 

[bbmac]

BBmac, that again makes sense, when everything is aligned on several time frames and you have several supporting factors you can really load up and have greater confidence in the trade. Doesn't Trader Dante look for confluence as well.

Grey1 went through his CCI settings on several time frames as well generally.

Must admit I tend to keep it somewhat more basic, I generally just stick to my setup which is also basically buying pullbacks in an established trend, trying to capture a part of the waves markets constantly make, and then just stay away when chop sets in around noon or news / numbers come out etc.

(Which means one is done already for the day after the "open" in these times more often than not ?!?!)

;-)

Basically everyone is either a trend follower or trades reversals to the mean.

No other way to make money as a directional trader is there at the end of the day.

Seems like I do the former, and you the latter.

But then I'm a lazy guy and going along with the flow, merely following the path of least resistance suits my philosophy on life and the workings of the universe far more anyway.



Eg, where you went long cable, your probable exit would have been around where I would have started looking at a short. (Didn't take it tho as I'm typing on boards instead of doing what I should be doing, trading hmm. (But trend / pullback etc also identified by me with some moving averages and oscillators tho along with price action, ie lower lows - lower highs in this example.))

I'm just a visual guy and the slope of a moving average - I obviously don't do crossovers - is just a quick tool to gauge whats going on.

Couldn't one see an up or downtrend without a MA ?

Sure.

But couldn't you drive from Berlin to London without a navigation system too ?

Or, once arrived, park your car without a reversing camera or parking beepers ?

;-)

Yeh I trade both ways both with and against any trend on my intermediate trend t/f's. Eg today in gbpusd trend is down to 15min t/f now (weak downtrend in 30min/1hr) per overall price action-peak/valley analysis, and previously to 5min only. In looking to get with trend like you I do so by firstly ensuring that there is a trend to 'get with' ie there must be a trend present on at least the next higher t/f from that a repeating indicator set-up develops at after a pullback and at the point of entry the macd signal line must be below-downtrend, above-uptrend the axis on that t/f and at least pointing with the trend direction (if not crossed) on the t/f above that. The repeating indicator set-ups for a trend re-entry are based around hidden divergence, and these with an individual price action trigger at pre-identified potential sbr/rbs on the next higher t/f where the trend first exists add up to a hi-probability trading opp to get back into trend after the pullback. essentially buy the dip/sell the rally with a few rules added in.

In trading counter trend I do so only at pre-identified potential supp/res and recognise that this might only be a pullback to the first obstacle of potential sbr/rbs on next higher t/f, but these pullbacks are highly trade-able and hi in probability. If the trend is striong and exists across t/f;'s above my trigger t/f I look for supporting repeating indicator set-ups on the t/f's higher than my trigger.

Example of this is in gbpusd just now, price is finding support at the previous 1hr swing hi/lo/hi zone around 6400, ie potential rbs, and at that point I identified a trigger t/f 1min Reversal A seq and crucially a supporting intermediate t/f 5min Reversal A with quadruple regular immediate bullish divergence in my lead oscillator on that t/f...(see pic below.) This confluence of these repeating set-ups developing at potential RBS, even against the trend gave me the confidence to enter the market on the 1min trigger against some sustained intraday selling in the pairing, and a +30+ pip gain available resulted so far.

This is the area on 1hr where potential rbs was identified and the set-ups developed;

 

[tenbobtrader]

p&f

just records price no time

you don"t need to apply anything to them imho except

Stop & Limit

Time = confusion for many newbies

instruments = confusion for many newbies

 

[Neoripley]

Those that say that they do not work are beiung too simplistic both in their analysis and the absoluteness of such a statement.

Agreed. I never said they don't work. I said they don't ALWAYS work. You have to admit that. All I've tried to do is suggest WHY that might be and what could possibly be done about it. OR to suggest that instead of saying "my indicator isn't working today, it's not a good indicator!" you could think "my indicator isn't working today it's not a good day".

 

[BSD]

Ah ok BBmac, that's cool. You do both, trend and countertrend.

I really like your approach.

Now, I'm afraid this is in German, but the pics should explain quite a bit already.

This guy trades for a living and very well at that and you might like his approach.

He goes trend and counter trend wise too, altho this here only explains his trend approach.

Red line: 1500 tick HILO over 2 periods

Blue line: 500 tick HILO "

Gold line: 150 tick HILO "

Those define trend. First you wait for Gold over Blue over Red => longs only.

Then you wait for a pullback to OS for longs.

Vice versa for shorts.

Of course he also looks at overall market condition, eg only trades when the lines are clearly aligned, eg when price is stuck between red and blue the markets are congesting and you stay out.

SR Trading - Trader Forum - RBS marketindex • Thema anzeigen - 3 MYSTERIÖSE LINIEN VON ROBERTO


Might interest you.

Good trading mate

 

[bbmac]

Agreed. I never said they don't work. I said they don't ALWAYS work. You have to admit that. All I've tried to do is suggest WHY that might be and what could possibly be done about it. OR to suggest that instead of saying "my indicator isn't working today, it's not a good indicator!" you could think "my indicator isn't working today it's not a good day".

Yes absolutely, but nothing works all the time!! My tech indicator based repeating patterns work every day in all market conditions and in fact I haven't altered any settings of those indicators for over 3years, even during the extreme volatility of the 2nd 1/2 of last year.

I think it boils down to how they are used. Obviously going long against strong selling/downtrend just because some oscillator or other moves into o/s territory is niaive but looking for a confluence of repeating indicator patterns, sometimes across more and higher than your trigger t/f with the confluence of other tech reasons like potential supp/res, in the context of the overall price action conditions (ie range or trend) on the t/f's you are looking at, is where the sensible use of indicators/patterns created from such lie. This much I am sure we can agree on.

 

[bbmac]

That looks v. interesting, thanks for posting, essentially a step ma created by those lines, crossover for trend with pullbacks to the shortest lines in a trend and an o/s or o/b oscillator. All variations on the pullback in a trend theme, - nice.

G/L

Ah ok BBmac, that's cool. You do both, trend and countertrend.

I really like your approach.

Now, I'm afraid this is in German, but the pics should explain quite a bit already.

This guy trades for a living and very well at that and you might like his approach.

He goes trend and counter trend wise too, altho this here only explains his trend approach.

Red line: 1500 tick HILO over 2 periods

Blue line: 500 tick HILO "

Gold line: 150 tick HILO "

Those define trend. First you wait for Gold over Blue over Red => longs only.

Then you wait for a pullback to OS for longs.

Vice versa for shorts.

Of course he also looks at overall market condition, eg only trades when the lines are clearly aligned, eg when price is stuck between red and blue the markets are congesting and you stay out.


Might interest you.

Good trading mate

 

[bbmac]

One more example, gbpusd price pullsback off that 6400 area to a pullback high of 6437 at which only the 23.6% fib of the 6554-6400 resides as potential sbr, ie no previous 1hr swing lo zone to act as sbr, but at the zone a repeating 5min intermediate t/f hidden divergence based re-entrty set-up (Re-entry type 4) develops with a good price action trigger as the entry, resulting in a further sell off to a new LL in the now established 30min trend t/f/1hr downtrend. Of course entry could be timed on the 1min trigger t/f which was a repeating Reversal set-up.

 

[Neoripley]

If you feel the main reason why indicators are not consistent is because of time/volatility, then indicators calculated on a tick chart would go a long way to solve this problem??

Yes, I definately agree with that. Because then the parameters of the indicator would be based on number of ticks as opposed to number of minutes/sessions. That might be more useful - you'd still have a whipsaw problem though but at least the parameters would be based on price volume/trade volume.

Do you get a chart that allows you to choose the number of ticks as opposed to number of minutes/hours? If so, how many options do you get? I think that would be useful.

 

[tenbobtrader]

Yes absolutely, but nothing works all the time!! My tech indicator based repeating patterns work every day in all market conditions and in fact I haven't altered any settings of those indicators for over 3years, even during the extreme volatility of the 2nd 1/2 of last year.

I think it boils down to how they are used. Obviously going long against strong selling/downtrend just because some oscillator or other moves into o/s territory is niaive but looking for a confluence of repeating indicator patterns, sometimes across more and higher than your trigger t/f with the confluence of other tech reasons like potential supp/res, in the context of the overall price action conditions (ie range or trend) on the t/f's you are looking at, is where the sensible use of indicators/patterns created from such lie. This much I am sure we can agree on.

good few posts bbmac

horse cart

cart horse

market knowledge / instrument knowledge

regards newbies getting started and avoiding them just becoming an illusion of control / total excuse to trigger etc etc / all the other negatives associated with them

you obviously have excellent market knowledge and I would imagine you could trade pretty well without any instrument on your chart

think a ~

A B C would help many

the correct process to implement one instrument in their strategy perhaps

good advice is scattered and does not really come across on threads that have broken up content / posts on this and that issue etc

articles that cover use of an instruments are very often very biased and read - HOLY GRAIL all problems solved


Andy

 

[Rossini]

Yes I think allot of chart packages have that feature. I use pro real time and you can chose any number of ticks.

 

[tenbobtrader]

Yes, I definately agree with that. Because then the parameters of the indicator would be based on number of ticks as opposed to number of minutes/sessions. That might be more useful - you'd still have a whipsaw problem though but at least the parameters would be based on price volume/trade volume.

Do you get a chart that allows you to choose the number of ticks as opposed to number of minutes/hours? If so, how many options do you get? I think that would be useful.

Yes I think allot of chart packages have that feature. I use pro real time and you can chose any number of ticks.

make sure your data feed from your provider is not throttled or both will be incorrect !

 

[tenbobtrader]

any back testing done from history data will be useless !

 

[Neoripley]

Just wondering if you can put such high numbers as ticks into an indicator - wouldn't it just barf and die? Again, maybe there's a way around that...

 

[bbmac]

good few posts bbmac

horse cart

cart horse

market knowledge / instrument knowledge

regards newbies getting started and avoiding them just becoming an illusion of control / total excuse to trigger etc etc / all the other negatives associated with them

you obviously have excellent market knowledge and I would imagine you could trade pretty well without any instrument on your chart

think a ~

A B C would help many

the correct process to implement one instrument in their strategy perhaps

good advice is scattered and does not really come across on threads that have broken up content / posts on this and that issue etc

articles that cover use of an instruments are very often very biased and read - HOLY GRAIL all problems solved


Andy

Good points made.

Finally today and an offer of further proof to those doubting the worth of indicators used in an intelligent way, another example, this time a repaeting set-up that I call a Reversal C (that had a supporting 5min Reversal Aii seq not shown) Both are regular divergence based, this time bullish. 15min too had a set-up based on same principles that I call a Reversal B. 1min is pictured below and the pre-identified potential support was the previous 1hr swing hi/lo zone also pictured below. The set-up has seen a gain of +30+ pips available at time of writing from the 1min individual price action candle trigger.

Confluence, confluence, confluence !!!

G/L

 

[Neoripley]

make sure your data feed from your provider is not throttled or both will be incorrect !

Yeah, then you'd have a worse problem than you started with

 

[Rossini]

make sure your data feed from your provider is not throttled or both will be incorrect !

What does that mean?

 

[Black Swan]

Yes absolutely, but nothing works all the time!! My tech indicator based repeating patterns work every day in all market conditions and in fact I haven't altered any settings of those indicators for over 3years, even during the extreme volatility of the 2nd 1/2 of last year.
I think it boils down to how they are used. Obviously going long against strong selling/downtrend just because some oscillator or other moves into o/s territory is niaive but looking for a confluence of repeating indicator patterns, sometimes across more and higher than your trigger t/f with the confluence of other tech reasons like potential supp/res, in the context of the overall price action conditions (ie range or trend) on the t/f's you are looking at, is where the sensible use of indicators/patterns created from such lie. This much I am sure we can agree on.

Was going to ask this/bring this into the debate, you often hear/read that "so and so trading plan won't work after x amount of time"...TBH why shouldn't it? I'm with you, I cannot see any reason why (based on probability) if x,y,z + a,b,c happens then the move isn't likely to go in your (my) favour.

 

[tenbobtrader]

What does that mean?

some brokers DMA will reduce the data at your end by up to 3/4

easy way to find out is take screen shot on 100 tick with a few S & R lines added

close platform and reload instrument - note any changes

or

re-load data from history and watch for bar changes (makes a complete joke of pattern recognition methods)

or ask your Broker for details of data to end user - onto IT support person most of the time etc

lower tf effected most ~

tick
volume bars
mp volume print
bar extremes

Reason: ?

was told by more than one source = it is very common practice, it avoids lots of IT problems and IT departments time sorting out at the user end(to many pc"s to accommodate / various specs etc etc ) = one size fits all

You should ask provider for full details and get them to accommodate you if your pc is up to it



on the subject ~ sb firms quote price box works along those lines / does not match chart = delay on chart update

ok if your M15 + / closer and it will bite you !



Andy