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

[TraderABC]

Аnother set of examples.

I've decided to use mathematics (statistics) to find the correlation between the indicators. The reason it is so important is this: It makes no sense to use many indicators if they all show the same stuff.


ROC&MOMENTUM=Identical
EMA,SMA,WMA,MEMA,SMMA=Identical
WL%R & Stochastic(SlowK)=Identical
SMA&Linear Regression=Identical
AutomaticTrendLine & Linear regression= Identical
BOllinger Bands & EMA = Identical except for the up/down channel
RSI & ROC = 90% Identical
MACD Histogram & Chaos Histogram=Almost Identical


Some indicators were unique however: Bollinger Bands Width, ATR (Average true range).

Data below. Closer the number to 1 the more positively correlated indicator is. The closer it is to -1 the stronger is the negative correlation


Momentum(5) & ROC(5) = 0.999
ROC(5) & RSI(5) = 0.84
Mom(5) & CCI(5)=0.69
Mom(20)&CCI(20)=0.691264
RSI(20)&MOM(20)= 0.905377
ROC(20)&RSI(20)=0.905455
Bollinger Width(20,2) & Momentum(20)=0.16
Bollinger Width(20,2) & ATR(20) =0.39
Momentum(20)&ATR(20)=0.14

RVI Oscillator & Momentum =0.27
WLR(14)&SlowK(14,1,1)=1
WLR(14)&RVI oscillator=0,44
MACD_Hist&RSI(12)=0.59
MacdHist&BollingerWidth(20,2)=0.31
MACDHIST&WL%R=0.71

MACD&DMI+=0.47
MACD&DMI-=-0.62
MACD&ADX=0.07
DMI+&DMI-=-0.78
MACDHist&Chaos=0.902997
MacdSignal&ChaosSignal=0.24
MacdHist(10,23,50) & STC=0.7997
SMA(10)&EMA(10)=0.999
SMA(100)&EMA(100)=0.991
EMA(10)&ModifiedEMA (MEMA(10))=0.997
SMA(10)&WMA(10)= 0.999
SMA(10)&SMMA(10)=0.997
SMA(10)&LR(10)=0.992
SMA(100)&LR(100)=0.89
EMA(Close,10) & ema(O+H+L+C/4 , 10)=0.9999
EMA(20)&BollingerUp=0.991
Ema(20)&BollingerDOwn=0.990
BollingerBands UP&Down=0.962
SMA(20)&ATR(20)=0.4964
RVI(10)&ROC(10)=0.869132
RVI(10)Signal&ROC(10)=0.751155
AutomaticTrendLine & Linear Regression(10)=0.992

[Tapereader]

"Could go" speaks of something happening to price in the future. Isn't that sort of trying to predict the future?

Originally Posted by Dunzy

Hello,

I'm not an expert at any of this but heres is my 2 cents about Indicators.
Indicators are not bout predicting the future or anything else of the sort. But what I think they are is an Indication "hence the word Indicator" of where the price could go up/down Period...

P.S. May I say they seem to do and decent job at it.

[demonfx]

I totally agree with this sentiment. The problem with indicators is that when you look at historical data, the indicator that you chose indicates the "closed period". I have now adopted a mechanical system and use no indicators, not even a moving average, just candles, and my trading is now at least profitable after many months of negative trades. If you can read candles/bars you can pretty much know exactly what the indicators will be telling you anyway. Mechanical systems are also very accurate to backtest because the OHLC of each candle is fact.

DFX

[shpforex]

to add my 2cents.

Technical indicator is not always right. However, it is not always wrong either.

The problem comes when people use tech. indicator as a holy grail instead of using it as an indicator itself.

I know many sucessful traders using indicators like ma, RSI, SAR...

They are sucessful traders because they know how to use it.

You can't hunt bulls and bears without knowing how to use the riffle.

You have to know how to use it first and practice a lot so that you can hunt them down without wasting too many bullets.

[NickP]

No indecator will or can predict the future but what they do it to help you make an educated guess of where things are heading and that it what you use to base your trades on.

What ever the indecator, if you can read it and make more winning guesses than loosing ones and you have good money management, your going to come out a winner.

This isn't rocket science, more of an art using numbers.

Just my 1 pip's worth....

[SoundFX]

I have held the opposite opinion in the past, BUT I now know that indicators are of course, quite useful, which explains their prominence in trading. They've been around for a heck of a long time precisely because they have usefulness. What matters is your interpretation of the indicators. Take a group of ten traders looking at the same indicator, and you may very well get 10 different opinions, based on interpretation, the time frame in which the traders are trading, and the influence of fundamental factors. The most astute traders, who have pored over charts for hundreds and thousands of hours will utilize each particular indicator in the most useful way for each given trader. Perception of the indicators and right/wrong action translates to performance. Indicators on their own are indeed worthless. The human mind is what gives indicators their power, much like any tool in life. Money management and planning are two other pillars upon which trading success stands.

-SFX

[perky_z]

Indicators are what they say they are... they Indicate not predict....

Indicators Lie

Even "Do you promise to tell the truth the whole truth and nothing but the truth" will help you...

The art is being able to know when an indicator is telling the truth by piecing
all the relevant "evidence" to make a "case" (trade) Once you have enought "witnesses" and "evidence" you can present you case to the "court" (Market).

Market timing is very important it would be nice to get the cycles of the days of the week but im happy with the cycles of the hours of the day..
i.e 8amGMT 1pmGMT and 10am NyTime...

http://www.moneytec.com/forums/showt...ght=superchart

have look at the perky posting here these are the indicators I swear by and they have a tendancy to lie also the art is knowing when..

[Tapereader]

If the future can't be predicted in the markets then how did Pinabetal predict what would happen to the S&P today? See his post at this link. Notice the time stamp.

http://www.elitetrader.com/vb/showth...6&pagenumber=2