Firstly apologies if this has been covered bucket loads on previous threads but here I go…
Looking purely at Technical Analysis (I understand money management and psychology are equally important) out of all the tools and methods out there which ones do you feel are best to concentrate on and get used to as a novice? The amount of info out there is scary!
Two or three methods to get to grips with at the moment would be great.
as usually Yunny1 is bang on. I use more S/R than Candlesticks although I am trying to incorporate that more. Depending on your style obviously choose tools. But I would say use trend lines and fibs possibly. Remember you want to have several things line up for you to take a trade. The thing about all of these tools is it has to give you an indication in the right spot. Not just a doji or harami in any random spot. But a doji at a S/R level in the direction of the overall trend. So you have 3 things all lining up at the same time in the same area. This will give you stronger confirmation. Remember nothing in the market moves in isolation and each situation is unique. So its impossible to have ‘perfect’ setups every time. But with more ways to filter you ‘less probable’ set ups we put are selves in a better position. Also anything you add should have a rule attached to it. I think that’s the most important thing. So if you are using S/R as soon as it breaks through your zone close your trade. Or if your using Candlesticks as soon as price reaches the last pivot high or the top of your engulfing close your trade. ETC… remember these tools only work if you can maintain the discipline and constancy to them and create a working system.
Depends what sort of trader you are and how you want to trade.
I would probably echo everyone elses sentiments as far as understanding price is definatley a first (mainly what drives price is pretty important). Candle sticks and S/R are just the most “basic” but accurate indicators, there are plenty of others which work too. Once you have the basics down experiement and find what works best for your type of trading. My advice is understand what you want an indicator to show you FIRST and then (and only then) find an indicator which does exactly that (if it exists), don’t just throw on a MACD because everyone else does.
This is why it’s important to trade in the now using indications that represent now. Volume, fibs, s/r are all now indications. Try to learn them first.
Not that I’m leaping to the defence of indicators but how exactly do Fib, Volume or S/R qualify as [I][B]now[/B][/I] indicators compared to other indicators. Support and Resistance shows you where price [B][I]previously[/I][/B] stalled or turned around, Volume shows you the number of ticks over the [B][I]past[/I][/B] X minutes and Fibs show you potential retracements based on [I][B]previous[/B][/I] price moves.
Technically all indicators are “lagging” indicators, even the price chart shows you what the price just did or had previously done. This is a poor arguement against the use of indicators as it simply isn’t true. RSI, MACD, CCI or moving averages are just like candles or S/R, they compare two or more prices with an aim to aiding your decision making.
For example trading S/R with candle sticks, you are looking at previous areas of resistance and looking for a price rejection or breakthrough of that area, but it is impossible to see a rejection in 100% real time as the candle is formed from multiple previous prices (all be it close to the current realtime price). However a candle can show you the [B][I]price over time[/I][/B] moving away from a S/R level, which is an indicator!
Now a disclaimer before I get totally flamed:
[I]Most indicators show you something about the price that you could get from reading price action[/I]. An RSI for example shows you the average difference between previous closes, allowing you to easily spot potential slow downs and reversals in trends. The benefit of indicators like this is that they show you something contained withing the previous price without the trouble of having to search through the price action yourself.
Use them wisely and with an understanding of exactly what they are showing you and indicators can serve a useful purpose in almost any trading strategy. They obviously don’t predict the future, but neither does S/R or price action.
Are there any indicators which are particularly useful in scalping? I am demo trading using Bollinger Bands at the moment which seem to work well in a trending market. I am also using Parabolic SAR which I find useful for confirmation. I am a real newbie and may be totally wrong so I would welcome any comments or advice.
It depends how you want to scalp. What sort of infomation, which an indicators might give you, are you looking for to help you make an entry decision? Are you looking for overbrought/sold areas, trend turning points, trend continuation points, breakouts?
What is your current method? Enter when the SAR changes after price bounces off a BBand? What time frame are you scalping in on and what are your BBand settings?
Also if you are having sucess with your current method stick with it, just adding extra indicators probably won’t help.
I think that I would be a conservative trader so am probably most interested in trend turning points and trend continuation points rather than breakouts. I am doing as you said by waiting for a SAR confirmation after bouncing off a Bband. I am also drawing my own trendlines and keeping an eye on the candlestick formations. I have also realised that I have been watching wave patterns even though it wasnt initially a deliberate part of my strategy. I am beginning to realise where I have been going wrong on occasion. Firstly, I have not been waiting long enough for a strong confirmation. I must stop worrying that I am going to miss the movement as I am only looking for a few pips and as I am mainly looking at a 1 min chart I have been too keen to dive in. I also need to accept small losses when the market goes quiet as I am never going to make any money holding on to a non mover of very small value.
Having written this, I realise that my initial question should actually have been - What would be a good indicator to help me to confirm a movement that I have predicted?
I would also be very interested in any thoughts that you have on where to place a stop loss for this kind of trading.
EDIT:
I would like to make a point about your choice of indicator, the SAR is very slow and is not really designed to show reversals or bounces in the way I think you are using it. Instead I would suggest the Gann Hi/Lo Activator (Gann_HiLo_Activator_v2.zip (1.82 KB)).
I’m not really sure what sort of confirmation you would need so here is a brief suggestion (I haven’t tested or traded this idea, although I am very familar with the indicator!)
I would suggest my favourite (and only) indicator, the CCI. As the CCI calcuates a weighted difference between the current price and the average previous price it is very usefull at identifying trends and turning points. Basically above 0 is bullish and below 0 is bearish, with the 0 crossover indicating a shift in momentum. See the example below.
There’s more to the indicator than that, but as a basic function this should be a good starting point. I would also suggest a Stoch or MCAD to look for momentum but you can get all that from the CCI anway.
As for SL. It’s pretty hard to place stop-losses when getting in part way down a movement, I would use it only as an emergency in case the price quickly moves against you. I tend to set mine at the high or low of the previous candle (entry candle is too tight most of the time) to provide some breathing room. This also means that a new low or high has to be formed to hit your SL which of course breaks the trend you are trying to ride anyway, so it’s quite a logical place to put it. Remember you can always get out before you’re SL if things appear to be turning against you, use it as an emergency get out and try to read the chart to get out sooner if you need to.
Finally, keep up the work learning to read candles and wave patterns/trends as this is much more important in a sucessful trading strategy than waiting for indicators to flash a trade for you. You’re on the right track using the chart/candles for finding the oppertunity and then using indicators for confirmation
Price hardly ever moves from one level to another in a straight line. There usually are pullbacks which present good entry points. Get use to spotting them and you may find its all you need. Throw on a MA of 10 to 20 periods (I like 13) on a 15M chart to assist in assessing the strength of the move.
Thanks to all for your good advice. I have ditched the SAR and have been trading today just using Bbands as S&R, candlestick formations and wave patterns. I have been making trades following the trend i.e not buying when the long term trend is down and bouncing off a confirmed S or R - took lots of (small) profits. Couldnt resist selling GBP just before midday and made a whopping profit. Thanks Shroomhead, I will investigate CCI and Codemeister, I will have another look at MAs.
As I am demo trading on Oanda Europe and only using trend lines, candlesticks, Bband and tomorrow (thank you shroomhead!) having a go with CCI, is there any reason why I should complicate things by using MT4? Am I missing something?
If the software you are using has everything you need then I don’t see any point in switching. The big pros of MT4 as far as I’m concerned is the big range of customisable options, indicators (if you want them) and scripts available so you can set a chart up just how you want it.
Scripts can be very useful for scalping (alt+c to close all trades for example), but it depends if you really need any of that stuff.
Traders should earn knack in how to use technical tools properly. Every decision should be prepared with a valid reasoning and you can do so when you have good trading experience.
