<b>Indicators are just summaries of the underlying behavior of market participants.</b> Like the 30-second news segment on CNBC, they do not tell the whole story, they can be misleading, but they are often better than nothing and they do save time. Some traders like indicators because they cut through all the clutter and highlight what those traders believe to be highly useful, profitable insight in the behavior of the markets. Others like to turn on the firehose of raw price data and watch the rippling patterns in the real-time flows. Some traders trust highly mathematical/scientific approaches to the markets and others prefer to stick to using their own noodles. To each his own.
<b>But, price is a summary too:</b> To those that say they do not use "indicators" because they only use price, I would argue that price is only another indicator -- another type of filtered summary of the market. Each daily candlestick is just a very abbreviated summary of the intraday action. The 15-minute bars summarize the 1-minute bars. The 1-minute bars summarize the T&S. And the T&S is just the tip of the iceberg on the underlying L2 dynamics in the order books of all the markets. And even the real-time order books represent a highly summarized view of the thoughts and intentions of the traders and investors that ultimately drive the markets.
<b>It all requires interpretation:</b> Ultimately, we traders seek to gauge the future actions of others and the effects of those actions on price -- Will buyers step up and bid? Will sellers raise or lower their ask? Who will trade, how much will they trade, and at what price will they trade? The evolving pattern of price is but an indicator or summary of the underlying behavior of market participants. Its just another dancing shadow on the wall of Plato's cave. And like every other indicator, price must be interpreted in order to be converted into profitable trading actions. And like every other indicator, price can be misinterpreted.
<b>Getting back on topic:</b> To GG's original question, yes we often times make things too complicated. Each added indicator multiplies the opportunities for misinterpreting the coincidences that appear in any complex data set. Each added nuanced trading rule for what must be going up, down, diverging, or at some magic level will only increase the risk of curvefitting. I say test and test carefully any new indicator, price pattern, setup, or rule. And be warned, the more complex the approach to the markets, the harder it is to create a statistically valid, logically defensible backtesting process. Complexity is the mother of self-delusion.
<b>price is not simplicity</b> But, even a price-based system can be overly complicated. Which is more complex: a system that looks for a myriad of patterns of triangles, trendlines, support/resistance, retracements, etc. etc. in the last 200 bars of the price stream or a system that relies on the last value of 2 indicators (e.g. a simple rule on overbought/oversold and the sign of a momentum indicator?). The system that relies on objective evaluation of 2 numbers is simpler than the one that relies on subjective evaluation of 200 (I'll make no wagers on which might be more profitable).
<b>Gordon, Should You Trade? </b> I applaud Gordon's willingness to step back from the markets and reflect on what he is doing and how he can improve his trading. I'd bet that one of the characteristics of losers is a stubborn determination to run their account down to nothing -- refusing to admit that something is not quite right (all balls and no brains).
I would encourage you to try controlled experimentation -- placing real, but small, trades using any promising approach to trading that you come up with. If you control the risk, the amount you might lose is small, but the knowledge and confidence you might gain is large. Think of these trades as part of your trading business's R&D budget, not some horrible loss that means you suck. Eventually, I am sure that you become justifiably comfortable with some method of trading and reap great profits.
Happy trading to everyone, whether your favorite "indicator" is price, or not,
Traden4Alpha
P.S. The "ATM" analogy ironically appropriate since an ATM machine is a device where you pay a fee to get your own money back out of the system -- just like the game of breakeven trading. LOL!
It's all illusion, wake up.