There are so many different indicators that you can use and sometimes they directly conflict. How do you decide what to use when and how do you resolve the discrepancies between them? I’ve worked with Stochastics, MACD, RSI, Parabolic SAR, Moving Average, ATR, and Ichimoku.
I’ve had some luck with most of them at different times, but I’ve come to realize that I can’t use any of them as instructions to sell/buy (except maybe SAR on the 30m for EUR). Actually, just recently, I had 4 indicators plus the trendline telling me price should go down, so I placed a sell order and sadly watched it go up…that was funny.
Anyway, back to my question. How do you all use the indicators (and how many do you use) and how do you resolve conflicts between them?
Yes there are a lot of indicators. In MT4 when you use the Insert>Indicator menu option, not from the Navigator window, it categorizes the indicators by usage. There are the ocillators, trends, Bill Williams & custom indicators. So you need to decide what info you want from them… one for trend detection, one for momentum, one for…???.
Coinicidently, a book I’m currently reading talks about momentum oscillator indicators. It pointed out that if you put several of them on the same chart, like the RSI, stochastics, MacD, and have their lookback periods all the same, ie 14, they all will basically be moving up and down at the same places. So you won’t really get any benefit from doing that. The only reason I can think of to do so would be if you changed the lookback periods to represent different time frames…one for the current timeframe that you trade from, and one with a longer lookback period to mimic a higher timeframe. Doing so will make them conflict on the current chart at times, but that means the higher t/f is going in one direction, while the current t/f is going in another…divergence I believe.
nice analogy - and true - but certain technical indicators will be used as areas of support and resistance by many other traders which have the effect of price repecting the line - were others may take profit or enter a trade, be it pivot points or a 55ema for instance.
That’s true, whether it’s hand drawing support / resistance lines which I’m just getting the hang of, or putting up fib lines. Price does react to those things.
things like macd though, based on that book that sweetpip mentioned and I’m reading it too. People tend to think of those as overbought or oversold indicators but what they really show is the rate of change of price. They are like moving averages but compressed in vertical dimension.
Sweetpip that’s an interesting idea, using oscilators based on other timeframes. I’m doing that with bollinger bands. For example if you put a standard bollinger on a 1h chart and also a 6 period bollinger, the 6 is close to matching the standard bollinger as it would appear on a 15m chart
Exactly! I am experimenting the other way around (I think)…lol. Optimize the period for the higher timeframe, then on whichever lower timeframe you trade off, multiply however many of it’s bars fit into the higher timeframe… so if the higher time frame is the hourly, then by 4 for the 15min, or by 2 for the 30m, or by 12 for the 5m.
As was already stated an indicator uses past data. Then some sort of mathematical manipulation of the data and finally tries to represent it in a way that’s easy to interpret. So indicators can’t really conflict, your interpretation can.
I use BB bands and watch price. I like to try different indicators. I think it is important to have at least some understanding of what an indicator is actually showing you, not just someone’s idea on what you should do when the red line crosses over the blue line. My advise would be use fewer indicators at a time if your predictions of the future are becoming cloudy:D.
Thank you everyone. I think you’ve highlighted the fact that I don’t understand the construction of the indicators as well as I should so that I know what they’re actually trying to tell me. Perhaps I will select a few that I’ve had preference for and delve more into those. That should be a good start.
I’ve been using chart patterns/S&R almost exclusively this past week anyway and ignored the indicators and have had way more success (I had 80% success rate this week!). So, I’m really just looking to glean a few more bits of info from the indicators as I try to make sense of it all (and to guard against my imaging patterns that aren’t really there…lol).
By the way SweetPips, may I ask what book you are reading and if you’d recommend it?
I’m reading “High Probability Trading Strategies” by Robert C. Miner. So far yes I’d recommend it if you’re interested in Elliott wave and Fibonacci “type” trading. It’s adaptable to any timeframe and market. As far as indicators go, it only describes the basic momentum indicators generally, but Miner has his own proprietary momentum indicator that he uses. It seems difficult at first to understand, but is actually very easy. It is price action too.
I’m discussing the method on the “A System that Can’t Lose” thread. Don’t get excited…lol, all systems can have losing trades, but if properly understood, and traded with patience and discipline, it has a high probability of overall profitability. That pretty much can be said for many methods.
Remember a lot of the popular indicators were designed and developed for trading stocks and commodities. Although I don’t have any experience with trading commodities I do with stocks. IMO stocks are a way different beast than Forex. I was a stock swing trader, I would buy and hold for three to ten days. I based most of my trades on not much more than the MACD and stock’s earning reports… and it worked!
The same methods with Forex would fail miserably. With stocks P/E ratios and earning reports were king and much more important than support and resistance lines - [I]although still important[/I]. Where as with forex support and resistant lines are king. So maybe that is a quick explanation of why there are so many indicators in the world that seem to be pretty much useless with trading Forex. LOL!
Hi tymen1!
The article you linked to also mentioned Pivot Points, which I’ve also used for a bit and noticed that there is always strong movement around some of them (although it blows right through them at times). Candlesticks patterns have been harder for me to work with. I might see a shooting star, only to find it go right back up again. I had very ill luck trying to use them. However, it seems they certainly ought to mean something since it is a picture of what price is doing.
I’m going to learn more about both, since I only have a cursory understanding of each. Any websites you’d recommend for a more in-depth look at each?
Also, I notice that there are two other tools that I get the impression are important for a good trader - Fibonacci and Elliott Wave Theory. Any thoughts on those?
