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MACD and Stochastic sucks???
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Created: by Lord Sidious Attachments:11

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MACD and Stochastic sucks???

  #71 (permalink)
Trading for Fun
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the1target View Post
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.)


Thanks for your input, the1target!

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  #72 (permalink)
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Simply deleted this post, not worth the headache of getting attacked for trying to help.


Last edited by the1target; May 4th, 2012 at 09:28 PM.
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  #73 (permalink)
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the1target View Post
Was asked to share my intraday trading chart; this is the 15 min, the 5 is just like it. Minimal noise, non-correlated indicators, and a testimony from me to not get lost in the weeds of minuscule tick/renko/range bars. Those make pretty pictures, they don't make money.

So, apparently your method is the only that makes money. If anyone uses tick/renko/range bars, they cannot possibly make money. Take a look at the chart in post #61 again, and tell me if that chart did not make money. Could your method have traded that chart on that day profitably? I love when traders believe that their method is is the only that is worth putting on a chart.


Last edited by monpere; May 4th, 2012 at 09:07 PM.
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  #74 (permalink)
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monpere View Post
So, apparently your method is the only that makes money. If anyone uses tick/renko/range bars, they cannot possibly make money. Take a look at the chart in post #61 again, and tell me if that chart did not make money. Could your method have traded that chart on that day profitably? I love when traders believe that their method is is the only that is worth putting on a chart.

Monpere - your response is exactly why I just knew that offering my humble two cents on one method to help out a fellow member become regularly profitable was a waste of my time. You have read thoughts into my attempt to help that are completely off base and inaccurate. I apologize if you feel personally offended and I wish you the best of luck with your approach to trading.

Is it routine in this forum to receive this kind of response when simply offering to help? Who knew. It will be my last.

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  #75 (permalink)
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the1target View Post
Monpere - your response is exactly why I just knew that offering my humble two cents on one method to help out a fellow member become regularly profitable was a waste of my time. You have read thoughts into my attempt to help that are completely off base and inaccurate. I apologize if you feel personally offended and I wish you the best of luck with your approach to trading.

Is it routine in this forum to receive this kind of response when simply offering to help? Who knew. It will be my last.

I wouldn't let one person's opinion defer you from looking to help others. There will always be those with differing opinions which is the beauty of trading. I thought your initial advice regarding how the indicators being a lagging signal was spot on.

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  #76 (permalink)
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the1target View Post
Monpere - your response is exactly why I just knew that offering my humble two cents on one method to help out a fellow member become regularly profitable was a waste of my time. You have read thoughts into my attempt to help that are completely off base and inaccurate. I apologize if you feel personally offended and I wish you the best of luck with your approach to trading.

Is it routine in this forum to receive this kind of response when simply offering to help? Who knew. It will be my last.

The forum is about opinion, I had no problem with your first post, it presented your opinion. But you can present your opinion without belittling that of others. Tick charts, range charts, renko charts are just pretty, but they won't make you money. That statement is an affront to whomever trade those charts. I've been on this forum for a very long time, I've never said anything of that nature, because I know there are numerous ways to make money in the market, even if I myself may have not been able to make them work for me, someone may have been able to. I would never be so presumptuous to believe that anyone's method is just incapable of being profitable. Let alone when such a chart is publicly presented to you to see that it can be done.

Search on my name on this forum, and look at the numerous charts that I've posted on various instrument on various days, not just cherry picked trades, I always present the entire day's charts with every signal for that day or period. No zen philosophy, just plain indisputable cold hard candles on the screen, every signal win or lose. I believe every one presenting advice should do the same. Just present your approach or opinion, no need to belittle that of others.


Last edited by monpere; May 4th, 2012 at 11:21 PM.
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  #77 (permalink)
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monpere View Post
I personally believe a robust method works on any time frame any instrument.




the1target View Post
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.

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.)

@the1target


Very Interesting.

Could you post a chart ?





the1target View Post
Simply deleted this post, not worth the headache of getting attacked for trying to help.

Oh come on.... I just got here and didn't even get to read it ...


the1target View Post
Is it routine in this forum to receive this kind of response when simply offering to help? Who knew. It will be my last.

@the1target

I am old and full of wisdom ( ... just ask other board members ... they will tell you ..."He's full of it" ... ) not to mention Zen-like and humble... yet @monpere disagrees with me sometimes.

On futures.io (formerly BMT) you are allowed to respectfully disagree with a poster... but you are not allowed to

I have been on other forums where that is not the case and every disagreement degenerates into a flame war. That isn't tolerated here... Thanks @Big Mike!

In all fairness ... some (including me) liked what you wrote ... others were less than enthusiastic ... but I didn't think anyone was unduly harsh or rude .

If you do indeed self censor yourself (please don't) ... other traders will the less for it.


Private Banker View Post
I wouldn't let one person's opinion defer you from looking to help others. There will always be those with differing opinions which is the beauty of trading. I thought your initial advice regarding how the indicators being a lagging signal was spot on.


I'm just a simple man trading a simple plan.

My daddy always said, "Every day above ground is a good day!"
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  #78 (permalink)
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the1target View Post
Is it routine in this forum to receive this kind of response when simply offering to help? Who knew. It will be my last.

It is common on nearly all trading forums but futures.io (formerly BMT) is the one with the least issues by far! Please continue to post suggestions to struggling traders. If new traders knew just how little they actually know, they would probably give up. Too late for the rest of us - personally I am pot committed.


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  #79 (permalink)
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NetTecture View Post
MACD and Stochastics have both problematic behavior mathematically that you seem to be not aware of.

Lets start with stoachastics - they only go between 100 and 0- so at the end up there after along movement tehy run out of space. THis means a LOT of tricky signals, especially when the trading range contracts at the end of a movement. This is simply how they are done. Not trying to go into the "my indicator is better" trap here, but if you look at it mathematically, I prefer FisherTransform because it has NO DEFINED RANGE. It can go up to 5, 10 (and it centers at 0 - i.e. not 0-100 but 0 is neutral, +3 very up, -3 very down). Because it has no "end" a long movement will drive it higher and higher without making it flicke. I have seen the stochastic hanging above 98 for quite some bars and any signal you get there simply is mathematical nonsense.

Second, MACD - same. I look at YM at the moment, and unless you have a VERY large MA then simply any cross is bullshit. Why? ATR14 is 3.22 - that is 3.22 ticks range per bar. Also known as "no movement". So averages converse and a simple average crossing will - ah whipsaw like mad,because simply you try to trade (not saying here indicators work per se) mathematical noise. Close 1 tick higher than last bar - long - 1 tick lower - short. Have fun.

Using indicators you should really try to understand the math and get into their exact behavior. Analyse the behavior of the forumla under edge cases (i.e. in long mevements then going to a tight range, for example) to understand wher ethe forumla may go nuts.

RIght now I look at a dying YM market (i.e. very tightening trading range). Even chart reading / price action is not going to give you anything in that renage because there is nothing happening. It was a long move, but - well - the contraction is simply there. Right now as I write this.

Once movement starts Sure, but make sure it is substantial enough to break all your indications out of sleep mode.

I absolutely agree with your statement above "Using indicators you should really try to understand the math and get into their exact behavior."

I am still trying to determine what my entry and exit criteria are going to be and I hate using something I don't understand. I now see that a lot of indicators like Stochastics, MACD, RSI are just visual representations of how price is changing and how quickly. Once you understand the (very simple) math and watch the indicator for a while you will learn that you can see the price behaviour without the indicator. You then become responsible for deciding for yourself if the price action (that underlies the indicator) is what you want to use to risk your money.

I think everyone understands that indicators are, by definition, lagging. This is not necessarily good or bad. What is a weakness of most indicators is that they not only lag but they are inflexible. Of the 3 indicators above, all are based upon a certain number of bars closing before they plot their next point. If you just follow the indicator you are locked into that view of the world. If you choose to understand the indicator concept and watch the price action yourself, you may be able to see movement at 7 bars and take action (ahead of the herd). Likewise you may choose to delay and not enter a losing trade.

Learn what the indicator really is, how it works and how it doesn't and then take responsibility for using it or not.

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  #80 (permalink)
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I love MACD and Stochastics, it really will tell you exactly why your trade failed.

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