One of the things I’m finding most difficult as a trading ‘newbie’ is knowing which approach to choose: Price action or indicator based analysis. I see merit in both lines of thought - I understand why certain patterns and candlestick formations give certain signals, but I also like the idea of indicator oriented approaches - especially momentum indicators and divergences.
Someone once told me that if you placed two identical stacks of hay either side of a donkey, it would starve to death from not being able to decide which stack to eat first. That’s probably a load of nonsense, but it’s a nice anecdote for the situation I’m finding myself in right now. I’m stuck between the two approaches and, as things currently stand, I’ll probably spend the rest of my life trying to work out which is best, rather than picking one or the other and getting my hands dirty. That’s why I need your advice.
In your experience, what are the approaches that have brought you the most success?
of course that can be easier said than done, because once that indicator is on your chart, your eyes have a way of being drawn to it when you really should be focusing on PA
I use a combination of both. But you should have a (or several) systems of trading. Candlesticks are an understanding of market Psychology, indicators are there for a confirmation because they are only created after the price action has occurred. This is not easy to do, don’t make the mistake of jumping in too early, wait for confirmation, buy 0.5 position and test the strategy. Don’t beat yourself up when you are wrong, it’s usually afterwards you can see what was happening clearly. This is a job, or a degree without a university if you like.
That’s my 2 cents!
Hope it helps.
Think of it like this, candlesticks are nothing more than an indicator and all indicators are directional pointers. An instrument used to monitor an operation. In our case the movement of price. From my pov, I wasted a lot of months working with technical indicators mainly because I believed PA was hard to learn hard to master. Now I trade only PA with a 20ema and market time clock. Contrary to popular believe, PA is fairly easy to learn and there are good threads here at BP to get you on your way. Its still very hard to master but so to are technical indicators. For me the power of PA comes from flexibility in application. Technical strategies tend to be rigid and inflexible to current market conditions.
Now, this is where i cop out of answering the question and leave the donkey staving. Speculating is a business. As a business you need a vision (what you wish to achieve from the market -full time trader, investment growth, income supplementary…) mission statement (how you achieve that vision) and strategic plan ( the mechanics of your business). The thing is, this is highly personal which is why what works for me wont work for you. That “groove” you need to find yourself
Thanks for the responses. Based on what’s been said here, I’m thinking that maybe using indicators on a higher time frame to identify trending markets that still have momentum, and then dropping down to a lower time frame and using price action to find more precise entries. Does this sound like a reasonable way to incorporate both types of analysis?
Hey man, that sounds like a reasonable approach, as long as you’re comfortable with that method. This is also how some of our blog traders try to predict price action, they go with the longer-term trend then zoom in to a shorter-term time frame to pick entry levels. Keep track of your results for this kind of analysis and then make adjustments if necessary or add indicators as you see fit. Good luck!
All great advice. Let me add "How you start is not how you have you will probably finish. I used several indicators across several time frames helping me to understand trend, momentum, cycle, support and resistance. The thing I liked and like most about indicators is while you learn their purpose and how best to use them, to get max value, you also learn about the subject. For example, if you were searching for a trend indicator, and what the different ones did and how they could help you, one thing that happens if you pay attention is you also learn about trends and the different ways to approach analyzing them. If you looked at 5 different momentum indicators and how different traders use them. The common information that is a real benefit to you is the common theme from each trader is momentum and how it fits in to your trading.
Hope that helps
Gp
Sounds like a very good plan. You know I have a similar system on my own and getting decent results. But keep in your mind that you need a system according to your trading style.