Why so hard on indicators?

[Lamont_C]

Quote from spike500:

I don't agree. If you replay 10 times the same day, you should have 10 times the same trades. If you don't have 10 times the same trades you're subjective, because nothing changed during the days. The data was at each replay identical and should therefore give exactly the same entry and exit points.

For the individual trader, perhaps. But whereas a hundred traders will all agree that the high for ACME was X for a given day (or within a certain intraday timeframe), they will not all agree that MA A crossed MA B or that the stochastic reached a certain level at a certain point or that the MACD "diverged" from price here rather than there because they will not all be using the same indicators or the same settings.

This is not to say that one cannot create a profitable strategy using indicators, even if he regularly alters his selection or his settings. But they are not in and of themselves more objective than a price point.

 

[PitchBlack]

Quote from Lamont_C:

For the individual trader, perhaps. But whereas a hundred traders will all agree that the high for ACME was X for a given day (or within a certain intraday timeframe), they will not all agree that MA A crossed MA B or that the stochastic reached a certain level at a certain point or that the MACD "diverged" from price here rather than there because they will not all be using the same indicators or the same settings.

This is not to say that one cannot create a profitable strategy using indicators, even if he regularly alters his selection or his settings. But they are not in and of themselves more objective than a price point.

To me the essential point is that if you trade according to a system, be it an indicator or not, you must have an idea about the profitability and the risks. So, to have an idea about these things you need to backtest it. But backtesting is only useful if you use exactly the same system in the future ( you want more certainty about what it will do in future). So if you use a certain setup, the statistical value of the backtesting is reasonable because you trade always in the same circumstances. Whether others agree or don't has no importance to you, because you trade your system, and on this system your backtesting was done. So the signals will be objective, because the system will always give the same signals.

If you trade by reading the tape your interpretation can heavily vary according to you mental state. If you just had a very bad day or a very good day, this will influence your interpretation, so subjective.

 

[Lamont_C]

Quote from spike500:

To me the essential point is that if you trade according to a system, be it an indicator or not, you must have an idea about the profitability and the risks. So, to have an idea about these things you need to backtest it. But backtesting is only useful if you use exactly the same system in the future ( you want more certainty about what it will do in future). So if you use a certain setup, the statistical value of the backtesting is reasonable because you trade always in the same circumstances. Whether others agree or don't has no importance to you, because you trade your system, and on this system your backtesting was done. So the signals will be objective, because the system will always give the same signals.

If you trade by reading the tape your interpretation can heavily vary according to you mental state. If you just had a very bad day or a very good day, this will influence your interpretation, so subjective.

I agree with you except for your last paragraph. Whether price is higher or lower at point B than it was at point A has nothing to do with one's mental state. Whether or not one allows his decisions to be influenced by the kind of day he's having/has had has nothing to do with the integrity of his system but rather with his ability and willingness to follow it. Based on posts, there are plenty of people who have enough difficulty trading indicator-based systems regardless of how objective those systems are or how thoroughly they've been tested.

In any case, trading by price need not have anything to do with reading the tape. One can trade by price using nothing but weekly charts and never even looking at an intraday chart, much less the tape for it.

 

[Maxprofit$]

I just feel too much newbie traders feel indicators and TA in general is the holy grail, they rely too much on it, put on too big positions and forget about the money management part of trading.

Then they lose money and say it's all crap.

 

[nzbryant]

Quote from spike500:

If you would use a crossover of the 50MA and the 200 MA you have an objective fact.

Yes, but that 'objective fact' is lagging reality.

 

[prophet]

Quote from nzbryant:

Yes, but that 'objective fact' is lagging reality.

So? Every indicator lags more or less. Reduce the lag and you increase noise and only see a narrow, short term perspective. Lag is actually essential for many indicators to have predictive ability.

 

[toe]

A pressure guage (and past experience) will tell you whether to pump your tyres. But it wont tell you the weather. Every indicator tells us something, the real trick is deciding what we need to know in order for a given entry/exit strategy to be profitable.

 

[man]

Quote from prophet:

... Lag is actually essential for many indicators to have predictive ability. ...

not sure if i agree to that. lag can serve as a reduction of noise and in this sense your statement may be true, but there are probably some more advanced techniques than lag for serving the purpose of noise reduction ...

 

[murray t turtle]

Quote from MAESTRO:/jasonbraswell

lame1 (lām) pronunciation
adj., lam·er, lam·est.

1. Disabled so that movement, especially walking, is difficult or impossible: Lame from the accident, he walked with a cane. A lame wing kept the bird from flying.
2. Marked by pain or rigidness: a lame back.
3. Weak and ineffectual; unsatisfactory: a lame attempt to apologize; lame excuses for not arriving on time.

===============

MAESTRO/Jasonbraswell;

Like what the elitetrader said to the trader who asked ''anyone else noticed market momentum has slowed on thier MACD ???''

Other trader said ''You think it may be a MACD error!!!''

Like ocasional MA [moving averages] but ; would rather watch CD moves @ a bank.



Hope this helps.