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MACD and Stochastic sucks???
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MACD and Stochastic sucks???

  #61 (permalink)
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monpere View Post
That's been my personal experience, but you need to prove this concept to yourself. Never take the word of any trader that something works without question. It may not work for you depending on how you trade. You need to put in the time looking at many hours of historical charts and verifying that this concepts holds true for you and your style and method of trading. You may not trade like me. I generally don't trade 5 minute charts, I trade very small charts, I am a scalper, so I don't look for 100 tick moves, I have small stops small targets.

We are talking about the concept of divergence, if you think it might be worthwhile to investigate, you need to look at it in the context of your personal trading approach. I am a big proponent of backtesting. Before I incorporate any concept in my trading, I go back and look for hundreds of historical occurrences of that concept, and make sure that it does hold true enough to my satisfaction in the way I trade. That's how I think you should proof any trading concept.

I don't mean to digress, but When you discover a good trading method and backtest it, would it be best to test it on multiple futures or just one. Or, do you generally find that successful systems work on any type of instrument.

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  #62 (permalink)
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Indicator limitations. Be Aware

Find attached a PDF report from a young lady with a Maths degree who tested a number of indicators and found them wanting. The results surprised me. And opened my eyes.

PS.

Mike, if this is in the wrong place, please move it. I was just thinking it might be useful info for more people but I do not know where best to post it.

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MACD and Stochastic sucks???-sf-report.pdf  
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  #63 (permalink)
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Itchymoku View Post
I don't mean to digress, but When you discover a good trading method and backtest it, would it be best to test it on multiple futures or just one. Or, do you generally find that successful systems work on any type of instrument.

I personally believe a robust method works on any time frame any instrument.

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  #64 (permalink)
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dee50 View Post
Find attached a PDF report from a young lady with a Maths degree who tested a number of indicators and found them wanting. The results surprised me. And opened my eyes.

PS.

Mike, if this is in the wrong place, please move it. I was just thinking it might be useful info for more people but I do not know where best to post it.


Nice. If you still believe that you can enter and exit trades based on simple indicators, this may open your eyes.

There is no information in that paper, which is useful, except the information, that you will certainly lose money, if you use MACD, Stochastics and RSI in a traditional way without filtering them.

If you are still not convinced that indicators are mostly useless, have a look at these two books

Amazon.com: Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals (9780470008744): David Aronson: Books

Amazon.com: The Encyclopedia of Trading Strategies (0639785317197): Jeffrey Owen Katz Ph.D., Donna L. McCormick: Books

Recommended reading.

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  #65 (permalink)
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Fat Tails View Post
...
There is no information in that paper, which is useful, except the information, that you will certainly lose money, if you use MACD, Stochastics and RSI in a traditional way without filtering them.
...

Agreed on the info in the report. The operating word in the statement above is "Traditional". Those indicators used in other ways can be very effective. Here's my chart of yesterday's 6E, with my indicator which identifies trade signals solely based on a combination of the MACD, Stochastics, RSI, but not in the traditional if line x crosses line y fashion, but rather in looking for certain patterns in those indicator lines. Look at all the signals, and determine what kind of a trading day you would have had, if you traded every signal (no discretion) entering at the close of every signal bar (arrow or triangles),putting your stop 1 tick behind that bar, with a target of 2 times the size of that stop.

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).

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  #66 (permalink)
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monpere View Post
Yup! If you are going to trade divergence, and you are going to take every one, you will probably be in trouble. You need a way to filter the good ones from the bad ones. There are certain divergences I see that I would not trade even with someone else's money, because I know that under certain circumstances it will most likely be throwing money away.

Usually if you know the trade is likely to be a loser when traded one direction, then you know it is likely to be a winner when traded the opposite direction.

So I am curious for you to define this "certain circumstances it will most likely be throwing money away". If the original "normal" trade direction has a poor risk-reward, then it would seem if you are already identifying these and excluding them then it would be a goldmine to identify them and fade them using a much increase risk-reward.

Mike

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  #67 (permalink)
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Big Mike View Post
Usually if you know the trade is likely to be a loser when traded one direction, then you know it is likely to be a winner when traded the opposite direction.


But there are the habits of retail traders:

(1) they are undercapitalized and use targets and stops of a few ticks - in that case a trader can easily be a loser in both directions, as there is something called spread, slippage and commissions

(2) if it goes into the right direction, they will pick a profit of a few ticks and then let their loser run in the wrong direction

Otherwise yes, if any indicator provides a negative edge, you can trade against the rule, for example by the RSI or Stochastics crossing the overbought line from above.

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Big Mike View Post
Usually if you know the trade is likely to be a loser when traded one direction, then you know it is likely to be a winner when traded the opposite direction.

So I am curious for you to define this "certain circumstances it will most likely be throwing money away". If the original "normal" trade direction has a poor risk-reward, then it would seem if you are already identifying these and excluding them then it would be a goldmine to identify them and fade them using a much increase risk-reward.

Mike

Maybe, but that strategy is not in my trading plan, I've never backtested it, so I would not trade it. Those trades are excluded by my rules so I don't take them. There may possibly be a gold mine there, but I don't need to trade every possible move the market makes. I'm sure there may be some guys out there who are taking advantage of those trades. On an instrument like the CL, I get an average of 20-30 trade signals every trading day, that's more then enough for me. In terms of risk, I trade with a fixed risk/reward, I don't vary my risk based on what I think the market might give me.


Last edited by monpere; May 3rd, 2012 at 07:49 PM.
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  #69 (permalink)
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Lord S,

If I may humbly offer a thought or two here....

The indicators your using are at best lagging, if not outright useless so much so that I suspect you would be better off without them. I offer this not to be harsh, but from years of experience of trying to force something to work to finally understand that "after the fact" mathematics is really not that helpful.

It appears your working from a 5 min chart, which is reasonable, however is it critical for you to understand the pattern of at least the next highest timeframe; the 15 min. As such, you are really trading from the 15 where the 5 should only provide insight as to acceptable price points to enter the trade.

The moving averages have proven to me an effort in futility and they have long ago been entirely removed from any chart I work with. These averages and indicators are tape measures that we traders ascribe too much validity to as they show you what happened, not what is happening or what is about to happen. Furthermore, they show nothing about where buyers and sellers have already proven their directional intention and also give no hint to where large traders have taken "inventory" actions. A further challenge with the indicators you reference is that the are all "correlated". Each of them is basically nothing more than a mathematical derivative of closing price. If a trader insists on using indicators, at a minimum they must be "non-correlated". For example, if one uses RSI, then also using Stoch or MACD adds no additional value and only works to provide additional input that the discretionary trader must assimilate; information that is not all that helpful anyway. An RSI user, therefore, should consider using a Bollinger Band to measure standard deviation, not another line based study calq'd against last close.

As to not totally bash your approach, I will share what I do believe in; and it is simple. The best tool for measuring the market, is the market itself. I don't mean the chart of the vehicle you wish to trade as the measurement tool for itself, I mean that a trader must have a deep understanding of the other moving parts of the market and their relationship with the vehicle they wish to trade. As a trader of the index futures, I have created my own indexes of contrarian movement vehicles. I have weighted each of them properly and added them together, thanks to the features of contemporary trading platforms, I have then put those cumulative studies on the chart of the vehicle I'm trading. It is my experience that they are vastly superior as an "indicator" for the movement of the future I'm trading. These two studies combine together things like vix, currencies, bond futures, and the specific vix measurements of the largest traded equities. This kind of relationship can be found for most everything that trades; the work just has to be put in to understand what those contra movers are.

Finally, it is supremely necessary to understand accurate support/resistance; which is much more that some turning point a trader believes looks good on a chart, but S/R as defined by where is it most logical that the large traders an increasing or decreasing inventory. An extension of this effort also applies intraday. The configuration of a traders chart need to show how the trades are firing either up to the Ask, down to the Bid, and in what quantities. It is here that true order flow can be understood, great trade entries can be made, and regular winning trade happen. It can also provide the history of where the large traders have acted. The cumulative delta work in the Gom series is an outstanding place to start understanding these relationships and are added to my charts alongside the contra indices i created.

Again, I only present this as my humble experience and what works in my trading everyday and certainly mean no disrespect. Let the market be your indicator, clear out the noise from the chart, slow the charts down while understanding the higher timeframe, know the "trend of the day" and don't fight, and get a firm grip on order flow.

(Shoot me a private message if you, or anybody else, wants to dig deeper and again just trying to share some of what works for me so we can all improve.)

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  #70 (permalink)
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knowing a trade is going to be a loser doesn't necessarily mean it will be a winner in the other direction, Chop could go in either direction. That's the thing, it's uncertainty. Wouldn't touch it.

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