Indicators are crap!

At times I tend not to understand why people say indicators are crap because it rely on past prices and does not tell the future.
But may I ask… Does price action, supply and demand zone and support and resistance strategy not depend on past prices???

Too many indicators sure is crappy but likewise is too many demand and supply zone.

I don’t really get the “hate” on indicators 🤷🤷🤷

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Too many people try to misuse indicators - to get them to tell the future, what the market is going to do. Can’t do that.

In trading you cannot know 100% what the market will do. But you must know 100% what you will do.

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Plus folks also expect one indicator to give them all the answers. When it doesn’t it’s trash. Somewhat like the way indicators are being tested at the NNFX youtube channel.

But the same folks then decide embrace the ideas of systems (Price Action & Smart Money mostly) while continuing to bash all indicators in general. Not realizing that they were supposed to use that one indicator as part of a similar system to begin with.

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All my indicators must line up - there are many - before I enter a trade, which is focusing on process all the time. So at approx 9 a.m. London time when I enter any trades, the probability of a winning trade is high, but ten minutes later, who knows what would happen. I’ve given my robot my best, now it’s up to him to deliver over the next session and maybe more.

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Part of the issue is, people don’t understand the difference between leading and lagging indicators.

I have a healthy degree of scepticism re indicators. When I started trading i used to try to learn an indicator and base my trading round that, usually ending up losing trades.

I’ve pretty much whittled my indicators down to the moving average as it seems to be the only one that works for me.

I think people who “hate” indicators have prob tried using them unsuccessfully and get fed up with people saying how good a particular one is. But it all comes down to individual indicators for individual trading styles. They are really only tools which may or may not be useful depending on the job. New traders like indicators more cos they give an impression of control and safety in the big, scarey, unpredictable forex market. More seasoned traders tend to laud price-action.

I use hedging alot, knowing that most of my trading decisions will be incorrect, but the trade will often, given enough time, go in my favour. That’s why I don’t use traditional stop losses. I’ve tried the traditional way of trading and lost alot of money, whereas now i’m consistently profitable (over time).

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I’m price action trader but after 3 years live still have my Bollinger band and stochastic on my charts for all they worth

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I’ve tried to get into Bollinger Bands, but hasn’t helped me much - what edge would you say they give?

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I said it abit in irony really ,as I’m used to it been on the charts now .I get panic attacks when they disappear off the IG charts now and then :triumph::open_mouth:

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I agree, they sure are nice to look at! They make me feel like a better trader by just having them there.

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Yes they do. Whatever approach we use, we only know two out of three things about price: Where it is now and where it has been before. We do not know where it will be next. If we only look at the current price without any reference to any historical data at all then it tells us nothing at all, it is just a number.

All our trading approaches rely on a degree of rationality in price movements. E.g. when a move starts up it generally continues in the same direction for an uncertain time and distance, or when price has bounced at a certain level it it likely to bounce again from approximately the same level again in the future. And so on.

However, price movements and cycles are not identical and repetitions of past patterns are never precise. Therefore whatever approach we adopt it is never an exact science, rather it is more like an artistic impression of what might probably/possibly play out based on what we have witnessed before.

I think this is mainly due to the fact that people do not often bother to understarnd what an indicator is actually doing, how it is constructed, what it is showing us, and what are its strengths and limitations.

The fact that they are “lagging” is not a problem - it is their purpose. They are generally comparative instruments - comparing the present with where we were before. Price movements are not smooth and unidirectional, they zigzag, breathe up and down, pause now and again and sometimes suddenly spike up or down, etc.The purpose of indicators is generally to identify amidst all the seeming price “chaos” the underlying core direction and strength of the price movement, e.g. are we seeing trends or ranges or pullbacks or reversals, etc.

The problems with indicators result from the fact that they are built on rigid mathematical formulas. Therefore what they project is purely a calculated output from evolving price input. This means they can only produce the same result if the input is the same.

This would be fine if all price “waves” were identical in speed, distance and direction. If they were then we could then “curve-fit” any indicator to this “standard” price action profile and it would simply repeat perfectly ad infinitum… but that is not the case!

Every trend, range, and cycle is unique and can be extremely different every time. This characteristic means that the input to the indicator can be very different but we expect its mathematical model to churn out the same result - but it cannot do that with the same set of pre-set operating parameters.

A typical example is a moving average. If it is set to, say, a 20-period formula then it will work fine as long as the periods move by similar amounts and at a similar pace. But if, for example, the price suddenly drops a huge distance during one period, the mathematics of the MA caculation cannot react fast enough to track the movement in the same way - and we moan that it is useless because it is lagging, therefore sluggish.

But the principle purpose of an MA is to identify whether there is an underlying trend and whether it is continuing or exhausting, etc amidst all the up and down price periods.

BY understanding its purpose and its working environment, and its limitations due to its structure, we can “read” what the indicator is telling us and recognise cicumstances where it will not function as normal.

So indicators are not “bad” by definition, they are just limited in their scope due to their mechanical mathematical data crunching.

Traders who use multiple indicators are, in fact, trying to overcome this limitation by using different types of indicators to monitor different characteristics in the price movements. e.g. direction, overbought/sold, volatility, typical average price ranges, etc. Engineering a set of such indicators can produce an effective trading model for identifying quality set-ups and increasing the probability of profit.

Personally, I only find value in a few MA’s on my chart, the rest is just based on “eyeballing” candles and levels and over various timeframes and a big dose of “commonsense” assessment of the general trading environment (e.g. national holidays, major data releases, central bank meetings etc). But trading is a very personal activity and each trader needs to experiment and find what works and what is superfluous. Every indicator/technique should have its own, clear purpose and the trader needs to understand how, why and when they work - and also when they don’t. :smiley:

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@SovoS

An excellent critique :ok_hand:

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Yup. If you pick an old classical indicator and tweak the setting correctly, it will be almost a Holy Grail.

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I did not know that there was “hate” against indicators…
I don’t use indicators to predict anything.
I use a combination og Bollinger, Keltner and Donchien channels to get my entry and exit signals.
Whenever price hits one of the high bands I am Long, when price hits the low band, I am out or Short.
Very simpel, but it works, of course combinated with position sizing and trailing stops.

Most of the indicators are useful, if you know when & how to best use it.[quote=“greenscorpio, post:7, topic:788814, full:true”]
I’m price action trader but after 3 years live still have my Bollinger band and stochastic on my charts for all they worth
[/quote] :star_struck:

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Yes exactly you can’t say indicators are crap. They are useful too, only if you know how to use them well.

Indicators aren’t crap, they play a major role in Forex market analysis only if you know how to use them. You can only have a deep understanding by giving them time to understand.

I’ve stopped using indicators. They didn’t seem to help me. However, that was in my beginning.

I didn’t stick with them because they didn’t make much sense to me. Who knows, maybe they would have worked for me if I stuck with them.

I wouldn’t say that I have any ill will towards indicators. They’re just not my preference. Nor do I have any interest in using them again…for now.

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Yeah @SovoS. You said it all. Personally, I don’t use indicators with the expectation of buy or sell signals. I use them as a way for more confirmations to my analysis. And when they meet at an area of confluence, that increase the probability of a killing trade.

Once the indicators confirm that the area observed is an area of interest, I began to study the candlesticks to predict where the price might likely go (reversal or continuation). Then I head over to lower time frame to get the perfect entry.

The strategy I am testing don’t always works. But it works a lot of time. So, right now I am backtesting.

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@dushimes, I think once your strategy works for you. It is perfect. As a read over and over again, it is a matter of preference. But I think, me being a newbie using indicators help me a lot.

That advice you gave me about backtesting my strategy, man that’s a goldmine.

I literally spend my whole day backtesting these indicators: 20 & 10 EMA + RSI. I am still on it. When I am done with that, I will change the RSI to MACD by combining it with the 20 & 10 EMA for backtesting. I can even backtest different currency pairs to see which one work best with my risk management strategy. :blush:

Dushimes, you are the man. :beers:

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