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Re: Indicators are overhyped... The truth about them...
This is the reason so many traders fail.
All of the back testing and searching for certain indicator settings or past patterns, give a trader a Probable trade set up. The indicators or patterns do not predict future events. They only clue the trader into a situation that mirrors the past. So a trader enters a trade with the knowledge that past set ups like this one have tended to continue long or short.
We make decisions about what information we will use to place a trade. This information can not be about what has yet to happen. It can only be about what has happened. Successful traders have come to trust their indicators to tell them when conditions mirror some previous point in the past. All the trader knows is that conditions are the same as they were once when the market did x or y. Therefore, a trader can position himself to take advantage of x or y, if and only if, the market does what it did the last time conditions were similar.
Indicators alert us to conditions in the NOW . We can not know what will come. So how do we trade? We look for condition that mirror situation in the Past. We trust (thru back testing , statistical analysis) that when these condition are present certain future actions are probable. But we as traders must focus on the actual conditions, and those conditions are in the present.
Check out the chart below. The market makes a pivot high. It then heads down and makes a higher low pivot. The candles turn back to blue but fail to make a higher high. Instead it makes a Lower high pivot. This is called a failure swing. What this tells us is that the market IS loosing momentum to the upside. Technically, if a market is loosing upside momentum, the momentum to the downside is increasing. Momentum conditions are changing. Notice how prices start to trade below the blue/black line. This line is the "line in the Sand". As prices trade below it we see that the bears are in control right now. Also not how the indicators and candles all turn to red. They are telling us that the momentum is to the downside. They are not saying prices MUST OR SHOULD go down. THEY ARE SAYING THAT MOMENTUM CONDITIONS ARE CHANGING TO THE DOWNSIDE. THE CURRENT MARKET BIAS IS DOWN. THE MOST PROBABLE SIDE TO TRADE ON IS THEREFORE THE DOWNSIDE. Where the market goes, only time and the market will tell.
If you don't understand that trading is not about predicting future events, you are doomed. By the way, if you flip a coin and go long on heads and use only one stop and reverse before getting out, you could make a lot of money. When you were right, you would make money staying with the trend. When you were wrong, the stop and reverse would put you on the opposite side. This goes to show that Cutting loses and letting profits ride are at the very core of trading. Like it or not.
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Volume Spread Analysis: reading the Tape like the Pros do.
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