Indicators are useful tools, but they are limited. First you need to understand, what an indicator is:
-> You take price. -> You perform some calculation. -> The result: price repackaged.
So if you look at the MACD, the RSI, the momentum, the CCI etc. all of these are oscillator/momentum type indicators, which tell you whether price moved up or down during a reference period and whether that price should now be considered as overbought or oversold. This information is already contained in price by itself, but the indicator may help you
- to reduce the information from price in a way that your brain is able to use it
- to include information from different reference periods (multi time frame) that are invisible on the chart
If you use Fibonacci or Pivot indicators, these are calculated from prior day's or prior week's highs and lows and use the volatility of the reference period, things that you cannot easily see on your chart.
However, I would not use too many indicators based on price, otherwise you will run into redundancy and information overload.
It is more interesting to look for different sources of information, such as
- volume (measures participation)
- open interest (measures the tactical position of other market participants)
- market breadth (for index futures, TICK and TRIN reval information on the underlying market)
- volatility expectations (VIX, OVX and other indices calculated from option premiums)
- correlated instruments
The diversity of the sources of information (looking at inter-market relationships) will more contribute to trading than a collection of 10 indicators all calculated from price.
With the exception of indicators drawing S/R lines, I have few indicators based on price: one oscillator which serves for entry timing and as a trend filter and currently the SuperTrend and Keltner Channels, which both convey information on historical volatility.
You won't gain anything by purchasing any super duper indicators.
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so maybe its a good plan to take use a few simple indicators and kinda... work a trade system around them? like a strategy but, not automatic.. more like a style. ( I have a more holistic way of looking at things ).
it looks pretty compelling just to "listen" to the indicators and act by them, but I know that it wont work - my question is how the pro's use the indicators in general, sounds like you need just the right amount of them to make good decisions.
That makes pretty sense. It is all about getting a clue, what the other market participants will do next. It is a bit like playing poker, you have to make educated guesses, as the larger players will hide their intentions.
I believe in monitoring trends, volatility and volume. These are the traces left by others on their way to build up or reduce their positions.
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Something I would offer is to pick the ones you want and then commit to them completely. Don't start switching around. You will end up on a path that is never ending. There are so many indicators and so little time. Don't be distracted by someone saying "this" indicator is so much better than "that"one. You can read post after post in this forum where someone says that. So, it doesn't have to be a vendor making those statements. It can and will be someone just like you finding the next best thing. Read through some of these threads and I think you'll find that a minimal set of indicators is all you need. You will also find a few threads about trading without indicators. You might want to start with those threads and then branch out from there.
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I think indicators are overrated. I don't believe in them.
What's the use of an indicator if you know that buyers/sellers who were in the market in the past are not in the market anymore ? What happend in the past happend because of certain actions at that time. There is absolutely nothing that says that will happen again, but 99% of bigmike users puts their money on them.
The only way I would use indicators is to watch what the non-professionals would do, and go against them. That's how I put retail money in my pocket.
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