I believe the following indicators have nonexistent predictive power; RSI, Stochastic, MACD, Bulls Bear & ATR for long term profitable trading.
Random test in Strategy Tester - Generate a random integer, if the number is Odd trade sell if it is even Trade Buy. Take one trade at a time.
Take Profit = 30 Min ATR + Spread || Stop Loss = 30 Min ATR + Spread i.e for a buy TP = Ask + ATR + Spread. SL = Ask - ATR - Spread.
Tested over one year 13,300 Trades in total the result yields 49.56 % Success (Win) Rate. 10 maximum consecutive losses. So flipping a coin yields circa 50% Strike rate.
Side Note: Separately tried an 11 step Martingale on GBPUSD with account balance of £10,000, Random entry as above 6 pips TP and SL and profit per trade of £3.10, compounded daily. Results were circa 1.5% or £150 a day to begin with. Account balance grew to £320,000. But problem is that if I lose 11 times in a row I would lose £6,40 or there abouts (if I wasn’t compounding) and losing 11 times in a row whilst very unlikely is ultimately inevitable; could you take that risk?
Coming back to original point. I decided to run the random entry trades again,but this time every time a trade was entered, I recorded the D1,H4,H1,M30,M15,M1 values of the above indicators at their standard/default smoothing levels.
reviewing the data in excel I noticed that I could not improve the performance of my trades by more than 3% by applying a filter individually to the indicators and checking against the ultimate direction of the trade (Close Up or Close Down, irrespective of whether TP or SL)
I cannot see the point of using these tools. In fact I created a custom indicator with M15, M30, H1 layers of the RSI, MA of RSI, and Stochastic Oscillator. It send me a text when they all confirm a direction. Testing this indicator’s performance yielded a 39% success rate…or…worse than flipping a coin.
I have so far made roughly £4,000 using the custom indicator for the last 3 weeks (the definition of beginners luck). I look at the chart and decide to get in on the signal or not. Since doing the predictive tests I have decided to suspend trading with the custom until I can get something that is at least 65 - 70 % right off the bat.
Please tell me your thoughts