my 2 cents
Everybody knows that indicators are price derivatives, but those who actually knows in details who work certain indicators definitely will use it with profit.
However others prefer something "pure", i.e. price or volume or range and in details knowing how it works will profit from that too.
The key, seems, is to know in details how works what you use and whether it fits your personality, because spending a lot of time with something better to have it comfortable.
P.s. but all that like on show, if you are sitting faraway from stage you are seeing less than those who are just a few steps/meters away.
There are two types of indicators: those which you personally choose that help you to view the market optimally and/or make your own personal trading decisions, and those that are "common" to a large group of traders and are essentially self-fulfilling prophecies.
The first types of indicators are optional, because nobody else is really reacting to them, and so it's just your personal preference whether you like to use them or not. The second type, however, are important for everybody to be looking at, even if you don't use them in your personal trading decisions.
For example, anyone who is daytrading without having at least the following 2 EMAs on their charts is at somewhat of a disadvantage:
20 period EMA on the 5 minute
20 period EMA on the 15 minute
You don't have to have a 5 minute chart or a 15 minute chart open, but if you don't have these lines drawn on whatever time frame you are looking at, it's like not being aware of important resistance and support levels that 80% of the rest of the market is using. Sure, you can always detect that a trend is slowing down at these levels using price action or other measures, but knowing where these lines are ahead of time and how other traders will typically react to them is a big advantage.
Now personally, if I was designing a trading system from scratch, I probably wouldn't have chosen these particular periods as being very important, as I think that there are probably better ways to view the market... but my personal opinion in this case is irrelevant, because so many other traders look at these things. Since tons of traders follow these averages and place their orders around them, if you don't have them on your charts you are missing some valuable information about support/resistance areas in the market.
There are other well-known MAs on different time frames that are also used by a number of traders, which become self-fulfilling prophecies as resistance/support areas as well.
So I would say that while many indicators are not really necessary, the more common ones like the two I mentioned are very useful for "spying" on what other traders are looking at and taking advantage of them.
Last edited by FBJS; January 12th, 2010 at 05:47 PM.
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