I just love indicators. I also love coding them and playing around with them, I also really like all the colours. They are absolutely great! Nearly all of them, some are boring, like the MA's.
BUT funnily enough the MA's are the only ones I actually use for my trading.......I simply can't trade with all the other wonderful coloury, shiny, highly complex, very clever or useless indicators.....I'm so sad
Hic Rhodos, hic salta.
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Very similar here. Indicators are wonderful toys to play with. I also love colors. The problem is that, when trading, my brain cannot make use of all this stuff. So I am in a permanent fight creating new indicators and then trying to make them invisible in a way that they do not disturb me.
An indicator typically reduces price to something less than price. As a consequence there is redundant information on the chart, as this information is already contained in price. So why use indicators at all?
1st class of useful indicators - Support and Resistance
Trading is a game, so if you have indicators for which you know that others react to them, they are useful. This is the "self fulfilling prophecy" class of indicators, which includes all sorts of support and resistance (floor pivots, fibonacci retracements or confluence, yesterday's high, low and close, the opening range, trend lines, trend channel lines, Keltner Channels, Bollinger Bands etc.)
2nd class of useful indicators - Alerts
Indicators that alert you to something, which is already contained in price. For example a narrow range or inside bar can be best identified by looking at price. But most traders suffer from attention deficits, so an acoustic alert is very useful. The acoustic alert does not cluster your chart and tells you that volatility is low and that you can enter a position at a lower risk than usual.
3rd class of useful indicators - Information Not Contained in Price
All indicators that convey information, which is not contained in price, but taken from a separate source. This includes volume, market breadth (Tick, Trin), open interest, market depth (DOM), intermarket relationships and indicators which help you to grasp the big picture (time frame transfer). The big picture is only important, because it is the picture that large volume traders have of the market. So this a bit like Keynes beauty contest, you do not want to buy for fundamental reasons, but you want to figure out large traders and anticipate their moves.
So indicators can be considered as spice, but not as food. If used with discretion, the indicators may improve the overall picture of the intentions of your opponents and help you to digest the primary information available.
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