One of the most commonly discussed trading topics is whether indicators are good or bad. Should a trader use them or is it just a distraction that doesn’t add anything to the „pure“ price-action you can see on a simple price chart?
The answer is that making a war of opinions out of anything related to trading and thinking in terms of „good“ or „bad“ is kind of silly. Remember, we’re talking about trading here, not about where you can get the best Burgers, which is the best soccer team or some other question of preferences. Trading is about making money, so it’s important to ask the right objective questions and for these there usually are objective answers.
Does the indicator you’re looking at give you an edge in the markets or not? Or if it’s an indicator supposed to provide you a specific information in an easier way, does it do its job and make your life as a trader easier?
If it does it would be crazy to not use it. An indicator is nothing else than some kind of transformation/representation of whatever data you put in there and how you’d like to see it. The same can be said about OHLC charts. If you want it really pure then you should look only at tick data as an OHLC price bar is just a summary of that.
So don’t get fooled by the „Price Action is the only way!“ crowd. Of their patterns, you can ask the very same question: „Does the shown price pattern provide an edge, yes or no?“. If the answer is no, and that is unfortunately the truth for most price patterns and indicators out there, then just forget about it and move on. Again this isn’t about a question of what appeals to you or not. It’s about whether it makes you money or not.
A couple of months ago I stumbled over a video where some trading educator explained that his/her trading career started trading with indicators and then he/she finally became 100% indicator-free and has now been „trading naked“ for a couple of years. As if using indicators is some kind of terrible addiction that’s very hard to break free from and not using any indicators is the hallmark of a successful trader. Now funnily I have to admit that when I started out as a trader I was thinking in the same vein for a couple of years. Crazy!
The truth is that any indicator is only as useful as the trader’s knowledge about the indicator. Obviously just randomly adding a couple of indicators to a chart isn’t going to be helpful. You should understand pretty well what an indicator actually does, how it works and what that number it spits out tells you. Otherwise it’s going to be very hard to know when and how to use it. Most indicators „work“ only under certain conditions. But the very same thing can be said about any price pattern out there. If you blindly trade it without having done any testing on whether it provides you can edge or not in the market/timeframe/conditions you want to trade it, you can as well use any arbitrary indicator out there!
As a systematic trader I use a lot of indicators in one way or the other. Most of them are indicators I came up with on my own to make my life as a trader easier. Others tell me whether a certain price pattern is there or not. But I know exactly how each indicator works and what it’s actually useful for. Whether it’s indicating some OHLC based price pattern or providing some measurement of volatility that might not be that easy to recognize by just looking at a price chart.
All content on AlgoStrats.com is only for educational purposes to show you the type of trades that you may consider once you have learned to trade and analyze the market yourself. It does not constitute investment advice. Marco Mayer & Trading Educators, Inc. will not accept liability for any loss or damage, including but not limited to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
There is a substantial risk of loss in trading commodity futures, stocks, options, and foreign exchange products. Past performance is not indicative of future results.
Trading Futures, Trading foreign exchange on margin and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures, foreign exchange and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures, foreign exchange, stocks or options on the same. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results. You should be aware of all the risks associated with forex, futures, and futures option trading, and seek advice from an independent financial advisor if you have any doubts. In addition, the information contained on this website is not intended to be investment, legal, accounting, tax or other professional advice. If such advice is sought, or other expert assistance is required, the services of a competent professional should be sought.
Any opinions, news, research, analyses, prices, or other information contained on this website, blog, twitter, youtube, facebook and elsewhere is provided as general market commentary for educational purposes only, and does not constitute investment advice. Marco Mayer and Trading Educators, Inc. will not be responsible for any losses incurred on investments made by you as a result of any information contained in this website.
Derivative transactions, including Foreign Exchange Products and Futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED WITHIN THIS SITE, SUPPORT AND TEXTS. OUR COURSE(S), PRODUCTS AND SERVICES SHOULD BE USED AS LEARNING AIDS ONLY AND SHOULD NOT BE USED TO INVEST REAL MONEY. IF YOU DECIDE TO INVEST REAL MONEY, ALL TRADING DECISIONS SHOULD BE YOUR OWN.