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

  #1 (permalink)
Trading for Fun
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MACD and Stochastic sucks???

Hey!


For the fourth time, trading YM, MACHHist, MACD lines and Stochastic (8,3,3), gave me sell signals very close to YM day high!!!!

Recently I lost money (more than I should have lost - I mean more than 2%) because of the same scenario. I also had situations were I made good money from pullbacks. My target uses to be the zone between day hight and the 61.8% fib point (about half "distance").

This time I lost about 1%, has Ive tighten my stops.

I sold 3 contracts (1€ per point)at 13310 (the days high had been reach at that time - 13312.5). I put my stop at 13322. In spite of the sell signals given from MACHHist, MACD lines and Stochastic, the price went up to 13340. What I think I did wrong: - in spite of the candles were high above 8 and 20 Ma at the time I sold, the slope of both pointed up...!


I confess I tend to look at MACHHist, MACD lines and Stochastic but also see the price action (wether if it seem to be going up or down). So, fellow traders, what am I doing wrong? Should I use other indicators for index future trading?

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  #2 (permalink)
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  #3 (permalink)
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Really they don't suck any worse than any other indicator and I mean that literally. I'm not trying to be funny. I find that indicators work about 30% of the time.

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  #4 (permalink)
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Everything sucks a certain percentage of the time, that includes indicators, pure price action, and any combination in between. Trading is not about a certain thing being always right or wrong or even being right more times then it is wrong. Trading is about the percentage of time that thing is right, and how much money you generally make when it's right versus how much money you lose when it is wrong. An indicator that is right 30% of the time can still make you a boat load of money, if within that 30% of the time it is right you have a money management approach that makes more money then that 70% of the time when it is wrong. Familiarize yourself with, and apply the concepts of Expectancy, and backtesting to determine if your method is a method that will be profitable.

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  #5 (permalink)
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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.

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  #6 (permalink)
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I see.


But, still, what did I do wrong with my analysis of this trade?

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To add, btw. - after strong movements it is not that rare that the first sell signal does not work. THis is why trading is more than reading indicators. It may be an idea to mark this as a sell, then wait for a confirmation in price and a pullback to sell into.

In this case - strong movement - you definitely want some confirmation. Your indicators are toally in overextended territory where the forumulas break down, likely.

Btw., WHAT future to you sell? YM high is 13284 tpday for the June contract

I am now in a short for YM - with a quite tight stop. Short 13274 target 13244 but I likely pull out earlier. Trend is tereriorating per ADX (which is also visible in price action). Range so far is getting close to 3 (30.05 on ATR 14) which is not tradeable, and fsher 21 and 55 short a correction down from QUITE extreme levels (7.58 is my high on the 55 - that is rare and reflects that). Looks like that trade books a small profit. At least I cam close to move my stop to break even + 1.

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  #8 (permalink)
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Lord Sidious View Post
I see.


But, still, what did I do wrong with my analysis of this trade?

I'd suggest putting up a chart of your trade(s) with entries marked - you are more likely to get some feedback. Hopefully you have some different chart timeframes you are following as well; not saying you need to post them, but that is one source that will usually provide a differing view.

BTW, trading MACD & stochastics will never leave you in the positive, in the long run IMO.

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  #9 (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.

Agreed about understanding any indicator that you use. You have to know each indicator's strength and weakness. MACD and stochastics are my bread and butter, but I don't use them in the standard 'if line x crosses line y' fashion. I look at the patterns the lines are making. I mainly use those indicators for divergence, but there are certain divergence signals they give me, that I will not touch with a 10 foot pole, because I know under certain circumstances those signals are just plain trash. This is where many thousands of hours looking at historical charts will help you discover these strength and weaknesses.

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  #10 (permalink)
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Exactly. I vome from a strong IT background and making architecture and complex systems trains you to see edge cases. First time I saw a stochastics I just wondered what happens to the crosses in long movements when both approach 100 A simple test run in excep was - ah - revealing.

I am a fan of price action (damn hard to code to it), but I like using indicators as indication (short signal in a very low fisher - that better has VERY strong reasons behind it). And knowing your tools is very important.

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