How Much Is Too Much?

I’ve read several threads about how they see “newbie” charts and there are half a dozen or more technical indicators.

FOREX is a very individualized art-form, so I guess my argument to that is “hey if it works for you”.

From a technical analysis point of view, you could break it down into two categories…trend analysis (Support/resistance, etc), and oscillators (CCI, Stoc, RSI).

Curious, do you set a number of confirmations for trend analysis and oscillators?

Also on average how many indicators do you typically run any given time? 2, 3, 4?

Yes, indeed. I don’t usually comment on that, myself, but it’s how I feel.

Inexperienced traders tend (for understandable but misguided reasons) to attribute predictive powers to indicators, and to imagine that the unreliability of some indicators can be compensated for by using them in conjunction with others which may “confirm” the “signals” to enter trades. :rolleyes:

Yes, indeed. The problem, though, is that these are typically aspiring (read “unsuccessful”) traders. (There are also a few rare exceptions to this!).

What people don’t appreciate (and I’m not blaming them: it’s a pretty difficult thing to appreciate!) is [I][U]the inverse correlation, in statistical/probabilistic terms, between degrees of freedom and robustness of methodology[/U][/I].

In simple terms, the more indicators a system is based on, the more backfitted and therefore the [B]less[/B] reliably predictive it’s actually likely to be. Long experience of discussing this in trading forums and elsewhere has made me increasingly aware that this really isn’t at all easy for people with little-to-no statistical background to understand.

On average, none.

Occasionally one (sometimes, if I’m just doing “fun, low-stake scalping” using the methods I’ve learned from Bob Volman’s books - this isn’t part of my “normal trading” - I’ll have a 20-period simple moving average there simply because Bob does this, so I’m used to seeing them both in his books and in his weekly trading summaries; also, very occasionally I’ll put an ATR on a chart, when I’m analysing targets and initial stop-loss placements, because I like to relate those to volatility; but none while I’m “trading seriously”.)

The usual problem with using too many indicators which are designed to highlight the same thing is that they can often lag one another or even contradict and then it is a question of which one to believe. Some will say that you then only trade when they are all in agreement. Trouble is, price doesn’t move in any kind of routine rhythm or speed and the perfect line-ups are often rare.

I have always (for quite many years now) only relied on two indicators, the first is a combination of EMA’s considered as a whole, and the second is an RSI which I only use to see if it is above or below the 50 line, I do not have the normal 30/70 overbought/sold bits. I do also include a daily pivot on my chart but only to give a general idea of which way we are most likely to move. Generally, moves away from the central pivot line tend to last longer and are somewhat smoother than retreats back towards it. I don’t really consider that an indicator. And that is it for me.

I might also add that I do not like the idea of trading mechanically from indicator signals. I find it far more reliable and a whole lot more interesting and challenging to gauge the activity in the market and the authenticity of a move on a discretionary basis and look at the indicators to confirm my thoughts and assist in timing both entry and exit.

Having said that, I love “playing” with various techniques and indicators just to learn about them and see what they are about, but I have never yet found anything to replace my basic, very elementary, indicator setup.

I have read somewhere that indicators tend to complicate things if not done correctly, on the other hand indicators are just showing you what is already on the chart to begin with, so i can safely say that most my trades on lmfx i dont rely much on indicators, just trying it out anyway.

+1 on everything lexys said. I went down the indicator road, kept trying new ones looking for that holy grail, all I got was a complicated chart and a bunch of false signals. It was only after I started trading naked charts that I began to have success.

Today my charts have no lower indicators, just a 200 period moving average and maybe some red horizontal lines to note support and resistance levels.

Example
First chart is Weekly where I circled the engulfing candle at top of trend that signaled an end to the uptrend, price then headed lower for 15 weeks until another engulfing candle in the other direction ended this run

The second chart is the 1hr with a 200 ma, for this pair it was as simple as waiting for price to pull back above 200 ma and shorting as it fell below, in this example you would have had about a dozen entries, and when the trend finally broke, you just would not had gotten in.

Regarding LMFX, have you made any withdrawals yet? I’m a little wary of them at this time.

It depends on the hunger of a trader how much he thinks is enough for him . I think to be contented in low profits is a nice practice it slowly develops confidence in trader . He can gradually make big profits when understands market moods.