How do I accurately choose the period for indicators?

[murray t turtle]

For one thing none of them are essential in determining what price has been doing - you can see that - and none of them can predict the future.

Indicators are not forensic identifiers of what the market is doing - they are not like fingerprints or DNA or universal scientific proofs: they can be helpful as guides to what you do next.

%%
Exactly; + even one of the worst ones =65 day moving average can underLine or overLine price. It[65dma] is too little too late, but even a stopped clock can be useful 2 times per day LOL.,. NO disrespect to WSJ, i know they love 65 dma........................................

 

[Amatrue]

ANY indicator on your screen should work better than 50% of the time

just do the opposite of your indicator $$$

 

[Trader Curt]

Errrr -- the chart IS an indicator. Japanese Candlesticks, price "bars", etc, ARE indicators. Even a chart of closing-price against a given time period still takes all the market info for that period and waits until whenever the last trade is printed, and then prints whatever that last value is -- painting that value as being indicative of the market for the entire period. And that process is multiplied by four, for bars and Japanese Candlesticks.

"...Price as indicative of the market for that period..."

The distinction you wish to draw is common, but mistaken.

Yeah and your post is also an indicator. It's an indicator that an idiot has wrote it...

 

[bone]

Hi guys! I'm new to trading, been educating myself on indicators, chart patterns, etc,. They always teach you how to use them, their history, etc,. but they never seem to tell you how to choose the period for an indicator, for example: Stochastic Oscillator has the period K and period D set to 13 and 3 by default (default settings for the trading platform that I use) Why is that? Why is it 13 and 3? Does changing the period make any effect on the accuracy of the indicator? Does it depend on the time period of the chart? If the time period of the chart is in minutes, does that mean 13 period is 13 minutes and 3 period is 3 minutes? Also another thing that I've noticed is that some traders can predict the exact time the market is going to be bearish or bullish in the future, for example: at X time in the future, the market will be bullish. How do they do that? Is there an indicator for that or is it just an experience related thing? I've tried looking all this stuff up on YouTube and Google but nothing's been helpful so far. Could you guys please help me?

I would like to walk you back a step - the first question is: what is your trade holding time frame? Are you day trading, or swing trading, or trading long(ish) term ? That makes a huge difference in terms of the period of data you use and your study sampling parameters.

 

[Handle123]

Imagine yourself in Bangor, Maine and you have just enough money for gas to get back home to Otay, Ca., but your GPS just broke. The only map you have outlines outer edges of the 48 states. Guess what, every 50 miles you might be asking people how to get back home, many people will tell you something, but you have no clue whether they are correct or they lost themselves or want to watch you drive in circles.

This is very much like trading, charts and indicators/parameters, what people will tell you might be true and they most likely often lost. Best to learn charts, they are a map of the past, more you study and learn, more you will understand.

After you learn charting well, add couple indicators and learn relationships to price, what do you expect an indicator should do, and when it does something other than expected, then you might have an "edge" that others do not have.

You play the game long enough, you just know and keep track of the stats n charting, and as far as maps, more you travel, don't need GPS or maps, when Interstate ends in odd number, it goes North/South, ends even numbers East/West, has 3 numbers it is a loop, if exit number on top right side of sign, exit will be to right, and if exit number on top left side of sign the exit will be to the left. They are patterns like in charting, Head/shoulders, triple tops, inside bars...

Good luck.

 

[Overnight]

...

You play the game long enough, you just know and keep track of the stats n charting, and as far as maps, more you travel, don't need GPS or maps, when Interstate ends in odd number, it goes North/South, ends even numbers East/West, has 3 numbers it is a loop, if exit number on top right side of sign, exit will be to right, and if exit number on top left side of sign the exit will be to the left. They are patterns like in charting, Head/shoulders, triple tops, inside bars...

Good luck.

I like the analogy, but you also have to remember the extra dimension.

If the Interstate is E/W, the numbers run low in south to highest north. If Interstate is N/S, the lowest numbers run low in east to highest in west.

And then there is I-95, which kinda' vanishes for a time somewhere between NJ to north of NYC, and magically pops up again in CT, and then vanishes again south of Boston and magically re-appears north of Boston. Bloody northeastern creeps, lol!

 

[Josef Friedman]

Indicators are important but it is not effective to look at only a few. I analyze 42, or more accurately, my computer does.

For the last year or so I've looked at lengths of 1,3,7,13,21,31,43,57, and 73. This is a sequence adding consecutive even numbers to the prior result.

Market action can be analyzed quantitatively and objectively by doing this. It is a lot of work and at the end of the day uncountable riches and happiness are not guaranteed.

However a person on this site who wants to turn $1000 into $10,000,000 isn't really looking to do hard work.

 

[andre.salmeron]

Hi guys! I'm new to trading, been educating myself on indicators, chart patterns, etc,. They always teach you how to use them, their history, etc,. but they never seem to tell you how to choose the period for an indicator, for example: Stochastic Oscillator has the period K and period D set to 13 and 3 by default (default settings for the trading platform that I use) Why is that? Why is it 13 and 3? Does changing the period make any effect on the accuracy of the indicator? Does it depend on the time period of the chart? If the time period of the chart is in minutes, does that mean 13 period is 13 minutes and 3 period is 3 minutes? Also another thing that I've noticed is that some traders can predict the exact time the market is going to be bearish or bullish in the future, for example: at X time in the future, the market will be bullish. How do they do that? Is there an indicator for that or is it just an experience related thing? I've tried looking all this stuff up on YouTube and Google but nothing's been helpful so far. Could you guys please help me?

Like others said, these values are nothing but historical artifacts and default suggestions. I've heard that Welles Wilder's RSI, ATR and ADX values were based on lunar cycles (14 periods then became the standard). My approach is that you tweak indicators to the specific instrument by conducting a statistical analysis.

Also, please bear in mind that the usual approach to oscillators - those things that were supposed to tell you whether the instrument is oversold or overbought - is a bit off. The actual thing you should be using them for is spotting divergences: say when price makes a higher high and the oscillator makes a lower one. That actually makes sense as it tells something is not really right about a given movement.

That being said, the most important thing regarding oscillators and other indicators is: manage your expectations. Best case scenario is the indicator or, rather, the interaction between price action and indicator will give you some insights which allow you to be right more than you are wrong, most of the time. But it will not, in any way, grant you guaranteed success - which is kind of obvious, since if that were the case no one would ever publish them.

The way you should approach technical analysis (TA) and the role played by indicators within it is that they are tools, not crystal balls. They help you analyze and come up with ideas regarding the future behavior of the market (hopefully, one that puts the odds in your favor), nothing more than that.

Also, with regards to traders who are able to predict the future, there is no such thing. What there actually exists is people who are great at selling the perception that they actually can.

Best of luck to you!

 

[aquarian1]

Hi guys! I'm new to trading, been educating myself on indicators, chart patterns, etc,. They always teach you how to use them, their history, etc,. but they never seem to tell you how to choose the period for an indicator, for example: Stochastic Oscillator has the period K and period D set to 13 and 3 by default (default settings for the trading platform that I use) Why is that? Why is it 13 and 3? Does changing the period make any effect on the accuracy of the indicator? Does it depend on the time period of the chart? If the time period of the chart is in minutes, does that mean 13 period is 13 minutes and 3 period is 3 minutes? Also another thing that I've noticed is that some traders can predict the exact time the market is going to be bearish or bullish in the future, for example: at X time in the future, the market will be bullish. How do they do that? Is there an indicator for that or is it just an experience related thing? I've tried looking all this stuff up on YouTube and Google but nothing's been helpful so far. Could you guys please help me?

Many indicators were created during the days of daily bars.

In answer to your question, it depends on what you are trading, your trading style and your trading time frame and what you are trying to do with your indicator.

As you know indicators are generally lagging as they are computing from past trades (price time, volume).

I trade ES only, intraday, and my style it to try and pick the tops and bottoms.

On a chart of 5 min bars I was wanted to use the indicator (the SMA) to find retracement levels. Initially I went through every period, one after the other eg. starting at 4 then 5 (the chart redraws) and then 6, then 7, then 8 etc etc.

It's a lot of work but one I find the correct period I leave it.

Remeber there are basically two broad categories - mean reversion and momentum that will make a difference as to which indicators you used.

With Ninja Trader you can have the input to an indicator be another indicator.

General thoughts:
Keep you size small and aim for consistency to limit drawdowns and slowly build your account. Trading isn't easy. Work hard and think for yourself and be creative.

Good luck

 

[aquarian1]

Just curious, what are you left with after you delete all indicators ?

I agree that using indicators just by looking at charts without understanding their meaning can be dangerous but seriously why discard indicators if you believe in price action ?

And even if you don’t believe in price action and TA why would you advice everyone to get rid of them? I suspect there are people making money using them one way or another. Need some help here. Anyone ? Raise your hand, please.

It’s not a rhetorical question. I bet a lot of the contributors here would be interested to hear your answer.

I don't see it as an either or question.

I have charts with only the price bars and also charts with indicators.
I like to have both and look at both.

On one chart - my 5 min chart - I have indicators to help me quickly see:
1. Has the momentum peaked?
2. Is the SMA rising and is price above it?
3. xx to see about peaks.

On another chart - a 3 min chart - I leave it clean and draw trendlines and support and resistance levels.

(I look at many timeframes these two are only examples)

The reason for this is I have a tendency to get in on the front of the move. I want to wait to the backside - but not too long.