Indicators are overhyped... The truth about them...

[bobnat]

I believe the most important step in a trader's journey is when he finally (if ever) assimilates the idea that trading is not about predicting the future. It is simply about taking calculated risks utilizing proper risk control and money management so that, in the long run, the probabilities pay off in his favor. It's hard letting go of the belief that the markets can be "figured out" or "predicted", but until it happens, one is going to get their ass handed to them eventually.

Nat

[TraderABC]

Originally Posted by GBPKING

I do believe indicators are like the trade map. I canot find my way north or south with out it.
You just need to find the right map for your trip.

But aren't all these indicators so overused that they are of no use today?
As I was saying in the good ol' times very few people used them as computers were not available... Today everyone can use them so the market adjusts to these conditions...

[TraderABC]

Originally Posted by MickMason

To a trader any indicator which doesn't indicate with some degree of accuracy can only be classified as garbage. Ok, that aside, looking at Fibonacci levels in various time frames shows beyond any doubt that even in their simplest form they still have a high degree of accuracy. Their use is widespread among technicians and traders, it's no secret, yet still they maintain that high degree of accuracy after all these years. If time erodes the efficiency of an indicator, as you suggest, why should Fibonacci be any different?

Mick

I am running tick by tick data on Fibonacci retracements and the results show hope.... Anyhow, I think that Fib are based on solid psychology rather than some math abstractions that bear no relevance here. That is why they seem to work. People feel more a strong retracement then some math abstraction showing a negative graph. And of couse there is some correlation between fib numbers and nature while there aren't such for some MacD or something.

[Tapereader]

Too many indicators out there. Most all lag actual price. I think it best to always compare any indicators with "tape reading".

[acronym]

" Over hyped" . Is that like overbought, oversold? At least they are free, mostly.
And doesnt backtesting, um, lag the price, somewhat? If ever there were a lagging "indicator", used to back up a trading method, that would be the ultimate, surely? Indicators are ok, its the computers fault.

[TraderABC]

Originally Posted by acronym

" Over hyped" . Is that like overbought, oversold? At least they are free, mostly.

Not really. Overhyped as being placed upon a pedestal it doesn't deserve. A false God if trading. And idol which is but a wood.

About money and indicators--->
First of all charting softwares may charge A LOT for extra indicators
2nd) All the books and courses teaching you about all these new complex indicators that are a must unless you want to lose.

And doesnt backtesting, um, lag the price, somewhat? If ever there were a lagging "indicator", used to back up a trading method, that would be the ultimate, surely? Indicators are ok, its the computers fault.

Since computers do not think it is never their fault... There is no stupid computer only stupid end user (and or programmer).

[graemenash]

Or you could just use MT4 which is free and has all the indicators you'll ever need either bundled in or available around the net.

As for indicators, they work, if used in the right way. Sure there's probably not many traders making money from MACD signal crosses or selling when they see an overbought stochastic.

Hence newer ways of using indicators, such as combining them or using divergence. Look at the CCI methods that have come out of the "woodie" group - very different from the original usage of CCI when it first appeared.

Now I have a bias, given that I'm a proud user of 24 indicators but i don't see how you can declare them worthless when many traders out there are using them successfully...

--
My Blog

[Hayek]

Originally Posted by taotra

Most indicators were never designed to predict. Even if they were, development would be based on statistical probability. And as we all know, probability is not certainty.


That's just plain false. Some people always try to argue that things change in trading. What has worked in the past, doesn't seem to work anymore, etc. The fact is, nothing changes in trading and it doesn't matter which market it is. There are only 3 directions: up, down, sideways (technically there are only 2 because if you go down to the tick level there is practically always an up or down, but that's splitting hairs), and 2 levels of volatility: high and low. These 5 factors are present in every financial market today as they were 10 years ago, or a 100 years ago in the Dow. If people made a killing decades ago using MAs then that's because the market was in a trending phase. MAs are designed to measure trend and they do that reliably and exceptionally well. If the market phase changes to one of consolidation or high volatility, MAs do poorly, but then that's expected. In that case, you use something else, like oscillators, Fibonaccis, support/resistance. If your backtests bombed it's because your 3-year data must have had a significant number of consolidation phases in it, which your model did not take into consideration.

Take a look at the daily Dow-Jones from around 1900 to today. It's basically one smooth J-curve, rising continuously from 0 to 10,000. MAs would have captured the majority of not all of that trend.

Hindsight.

If you already knew the market was in up trend, or down trend, or sideway phase, even without any indicator's help you would have been a billionnaire.