All indicators useless?

I'm still developing a strategy. Looking at different indicators and backtesting them.

I don't think backtesting them is enough, though.

This is my current outlook, I've been paper trading for about four months now. And the results look pretty good. In any case, I don't have any real numbers. So discount for lack of experience if you want to:

Points I want to make:

(1) Indicators are an attempt to signal a directional trend based upon a certain signature of prices. There are a lot of indicators that just don't make sense to me at all. You should understand why an indicator behaves the way it behaves and why it generates a signal when it does. I can look at a stock chart, and tell you what crossing EMA pattern will best fit that chart, if you're looking for trends.

(2) I started off with MA and EMA patterns because it smooths the curve of the price action. However, MA and EMA patterns have a tendency to oversmooth a lot of the price action. It measures what you want it to measure.

(3) What discretionary traders say are valid. When it comes down to it. It's all about price action. However, I've found that working with one technical indicator at a time, understanding the technical indicator, and the price action associated with the technical indicator. Will help the mechanical trader realize the short coming of the technical indicator he chooses. He should then look for a complementary indicator that will prevent the primary indicator from being faked out.

(4) What mechanical traders say are valid. Mechanical models provide full traceability. If your models aren't trading so well, you have a viewpoint to start looking your previous trades and find out why they don't work. However, the full traceability that mechanical traders look for can be replicated in descretionary traders keeping a journal of trades.
 
An indicator's usefulness is directly proportionaly to its ability to coherently and effectively allow you to conceptualize and act upon price dynamics... the efficacy of any given indicator is person-specific...
 
"Indicators are an attempt to signal a directional trend based upon a certain signature of prices. There are a lot of indicators that just don't make sense to me at all."

if enough traders believe an indicator works it will work no matter if it makes sense or not.
 
a nice guy told me the other day about using exp. or simple moving avg. 10-20-30 min. on the s&p. i tried it on the QQQ's. but i think he told me 20-40-60, but anyhow i tried it this week and it seemed to work. i'm not a real good trader but i'm putting more into it right now and having a little success.i sure would like some advice if anyone is willing. so feel free thanks weld1
 
expoential moving averages give greater weight to recent observation than to regular moving averages. if you are running a screen using moving averages, exponential moving averages are superior because of their computation efficiencies and "self-corrective" nature makes computational error less.

As for crossover strategies, longer EMA represent longer trends in the price action.

The simplist would be something to such as buy actual price crosses over EMA-3. Sell when actual price crosses over EMA-3. If you work with this, you'll get a lot of whipsaw signals which can drain your account in slippage cost as well as commission costs.

I would consider the shorter EMA to be your buying horizon. I would consider the longer EMA to be your trade strategy horizon. To understand price action behind EMA trading strategies pay attention to the convergence and divergence of these lines to the actual price.

I would take several weeks of data and run your parameters against them. Just visually check to see that your EMA values catches the buy points and sell points that you want.

Working with different EMA action strategies, in general, you want your exits to be more sensitive than your sell off. The reason is that sell-offs tend to be more pronounced long side runs. You don't want to cut your profits short, but you don't want to let the trend reverse against you.
 
Quote from weld1:

a nice guy told me the other day about using exp. or simple moving avg. 10-20-30 min. on the s&p. i tried it on the QQQ's. but i think he told me 20-40-60, but anyhow i tried it this week and it seemed to work. i'm not a real good trader but i'm putting more into it right now and having a little success.i sure would like some advice if anyone is willing. so feel free thanks weld1
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My suggestion is to use it to trade once or twice a day. Pick what setups look the best to you. As a beginner try not to overtrade or you will blow out quickly. I do not know what time frame you use, I assume 5 minutes. Trade the crosses when you see spikes in volume to confirm the move too. Try to pick the choice spots.:)

Most important.....paper trade until you are comfy with the method and make consistant profits on paper before you move to live trading.:)
 
Quote from vhehn:

if enough traders believe an indicator works it will work no matter if it makes sense or not.
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True, but it's nice to know your indicator works so you know the strength and weaknesses of your indicator. I just meant that I do not understand some technical systems.

The GANN chart system is completely confusing to me. I'm sure some people use it and make money off it.

The Fibonacci sequence is an interesting theory. But since I don't have a lot of faith in the application of the fibonacci numbers, I won't use them. Not because they don't have validity, but because the system does not inspire confidence in me.

It appears that it really takes a small (but statistically significant) edge for trading, but discipline and risk management seem to be the biggest factor. None of my strategies do well in backtesting, because the losses kick your ass. However, with the stop-loss, and profit-taking rules, the profitability of the strategy makes a lot more sense.
 
This is true. I manually backtested my strategy and it gave me the confidence to pull the trigger...statistically my edge is tiny but the risk management part is what has allowed to me to make a few bucks and stay alive. It is so cliche that new traders (not that i`m seasoned or anything) ignore it but "cutting losses and letting winners run" is the foundation of any system regardless of how big an edge you have...and it only took me two years and 50K + to figure that out :confused: (I am thick headed)

good luck and stress free trading to all,
C.
 
Quote from weld1:

a nice guy told me the other day about using exp. or simple moving avg. 10-20-30 min. on the s&p. i tried it on the QQQ's. but i think he told me 20-40-60, but anyhow i tried it this week and it seemed to work. i'm not a real good trader but i'm putting more into it right now and having a little success.i sure would like some advice if anyone is willing. so feel free thanks weld1
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Heck, were all nice guys or gals (at least we think we are) but that doesn't mean you're going to get good advice. Treat everything you hear with skepticism, and research for yourself to draw conclusions.

Ok, with statement out of the way, here's MY advice with regard to moving averages: Use them as reference points for entry and exit and determination of the trend in the time frame you are looking at. If you're trade is (going with) the price action, entries at or near an MA will usually yield good results. If you're trade is (fading) the market, entries should be distanced from a MA looking for a snap back to an MA or greater.
 
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