If you could predict the future, you should focus on lotteries. As for the market, I think the best thing you can be is responsive rather than predictive. The few times you might actually "predict" the market will set you up for the many times that you don't. Just my opinion, of course.
Whipsaw indicators
- Thread starter agardnerii
- Start date
That's some good advice. "React to the market instead of predicting it."
ALL indicators work off of history; there is NO SUCH THING as a forward-looking indicator.
So, can you look at *history* and perceive patterns common to a turn? Yes. I favor Lane's Stochastic, and the Money Flow Index (a Lane's Stochastic weighted by volume). I also watch Wilder's ADX/DMI+/DMI-. I take those three, and tune them such that their performance is maximized over the equity/time period in front of me. Then I feel better about the time period to come.
So, can you look at *history* and perceive patterns common to a turn? Yes. I favor Lane's Stochastic, and the Money Flow Index (a Lane's Stochastic weighted by volume). I also watch Wilder's ADX/DMI+/DMI-. I take those three, and tune them such that their performance is maximized over the equity/time period in front of me. Then I feel better about the time period to come.
I guess that's trading in a nutshell. Using history to make a best guess at what something will do next.
Here is the problem I have with indicators. Indicators can give a similar reading for fairly differing underlying price action. That can be a problem. And the more indicators you use, the less attention you will be paying to what is truly important: price. We all like structure, but there is a trade-off. If you impose too much structure in your trading model, you risk not seeing the forest for the trees. If you assign too much meaning to indicators, you will not be doing the underlying price movement justice. Again, that is just my opinion. I have EMAs on my charts, but they are merely reference points and guide posts. They have no signaling value.
Look at a price chart. Is the price action clean or whippy? Is it showing an upward bias, a downward bias, or is the pricing ranging? If it is ranging, is it ranging tightly or in fairly wide, tradable waves? Do you really need indicators to tell you that? And if you are using indicators to signal trades, are you sure that you couldn't get more precision from price itself? Yes, you would need to put in the work and study the price action for a good length of time to adequately determine what would constitute a trade signal. But you have to do that with indicators as well. So why not just cut out the middle man?
Look at a price chart. Is the price action clean or whippy? Is it showing an upward bias, a downward bias, or is the pricing ranging? If it is ranging, is it ranging tightly or in fairly wide, tradable waves? Do you really need indicators to tell you that? And if you are using indicators to signal trades, are you sure that you couldn't get more precision from price itself? Yes, you would need to put in the work and study the price action for a good length of time to adequately determine what would constitute a trade signal. But you have to do that with indicators as well. So why not just cut out the middle man?
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You're absolutely right about this. What I'm trying to do "indicate away" my fear of losing money. Or "indicate my way" into the right move. But there's no amount of indicators that can do that.
Sailing is not the same as trading, but sailors do check weather reports before going out. Just a boat analogy.
In trading though you can control how much you want to risk, and if you risk less whipsaws wont hurt as much, or at all. The difficult part is making it worthwhile though, but is a start instead of hurting yourself (assuming youre not on sim).
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Good iceberg correction.Sailing boats, polar bears+ turtles have less trouble with wisdom, whipsaws+ icebergs.The Titanic received almost 7 [ actually 6]warnings of icebergs+ was attempting a speed record. Any body could make a math mistake like they did, however, equipped for# 68 lifeboats ; they took# 20 life boats.Not a prediction[titanic facts.net]
If indicators give a similar reading for "fairly different" price actions, then blame the user, not the unthinking, mechanical, algebra. No so-called "indicator" should be used right out of the box, but 99% of traders do just that.
Price itself is also an indicator of "things to come" -- but there is nothing particularly special about an instantaneous price, an EMA, a WMA, an SMA, or a left-handed monkey wrench. Instant price is mostly noise. Indicators are mostly dampeners. The right mix between discerning signal from noise WILL CHANGE from day to day, hour to hour, and sometimes ("with a wipe of the brow") minute to minute. To not periodically check your indicators (including candle-lengths) for relevancy, AND TO ADJUST THEM as necessary to be responsive to the market de jore, is asking for pain.
One thing that helps immensely, is that other ONLY ORIGINAL piece of data from a transaction: volume. You (and others) ignore volume at your peril.
{getting off the soapbox now....}
That's fine. We're all speaking from our own experience. Personally, I don't want "dampeners" anymore than I would want to wear mittens when I tie my shoes. Just to be clear, I'm not talking about "instantaneous price" in isolation as you seem to have implied, but price in relation to both immediately and not-so-immediately preceding price. I prefer to rely on my basic familiarity with price action to distinguish and separate the "noise" the best I can. I understand that some people might prefer to use indicators to achieve this end. However, with every convenience there is a cost; nothing is free. That's all I'm saying. You're giving up or overlooking potentially meaningful detail. And the more variables and moving parts there are, the more complicated everything becomes.
But if works for you, then who am I to argue?
As for volume, I do have a volume histogram panel at the bottom of most of my charts. I have use for it, but it is rather limited. Although I know how volume is supposed to theoretically provide information value, I could arguably do without it for the most part. But that is just my own experience. I'm sure other people's results may vary.
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