Technical indicators used by Day-Traders

Beginner Questions
#1

Hi,

I have recently finished reading the BabyPips school material (which I found to be a great learning material - thank you!) and now am trying to come up with my first trading system, probably to be called “Saursliezu dzelzcels” :wink:

I have read several discussions suggesting that no technical indicators are superior to other. However, apparently there does exist a rule that some indicators should be used in trending markets (e.g. Parabolic SAR), while others in sideways markets (e.g. MACD, RSI, stochastics and a bunch of others).

My questions would be:

  1. What other indicators might be useful in defining the exit in trending markets? (I read that one might want to use Pivot points, Fibonacci levels - however, I found those very subjective - i.e. hard to define & observe strictly the same rule for all trades)
  2. Are there any of those indicators mentioned above that would definitely not be applicable for looking at the 1M / 5M charts (used by Day-Traders)? (in most materials I read through, it was every written about 4H, daily, in some cases even weekly charts) :confused:

Many thanks for your advice in advance! :slight_smile:

Best regards,
D.

P.S. Apologies for starting a new thread - unfortunately I could not find answers on those questions by searching the Forum history :o

#2

To Smouke :

I am not an authority on trading as you would find an authority such as has written a book.

But I will give you what I have learnt from experience.

Firstly, be inpired by the following amazing hyperlink :

The Trading Game

It says, with, great authority, that which I would like to say and, says it in much finer words.

Now be inspired again by the following hyperlink :

Candle Sheds More Light Than The MACD

As you may probably guess, I have given up on indicators.

When I first started trading, I used the MACD and some other fancy stuff for my entries and exits.
I consistantly found that when I entered long , the market went short and vice versa. As a result I kept on hitting my stop losses and , therefore, losing money.
Messed around a lot, but still lost money. No worries on a demo account.

Then I thought I had it right, and started [U]live [/U]trading - result - lose much money with an occasional profit.

Revision of all strategy!! Look, look, look.
I knew about candlesticks and the above links plus my candlesticks books took on very great meaning for me, greatly motivated by my present money losses.

I started candlestick trading and [B]wow[/B], I was amazed at the reversal - I started winning money like crazy and …and…no losses!!

I now have the following theory :

It is the view of many traders, besides myself, that indicators do [B]not [/B]work. They look nice, sound very mathematical, but…but…they are derived from the price action, and as the hyperlinks explained, they are [B]delayed [/B]data.
Who wants to trade with delayed data - no wonder you lose money with indicators! Candlesticks are direct price action and their “data” is, as such, immediate.

Candlesticks are much, much simpler to trade than indicators - the strain is off you!

Now I am not trying to convert you - but then yes I am. Still,what you do is your business.

However, I am trying to save you from losing your live account.
Now when you start with your demo, you will make all the usual mistakes - no problem, that what a demo is for.
But live trading…well thats different.

Read and study again the sections on money management in the school. Notably, “the number one cause of death for forex traders” and
"money management" and
"which timeframe should I trade"

Print them and study.
Then highlight statements that summerize the whole articles.

Then do consider what I have said here and start demo trading. All the best.

I am a retired schoolteacher. (maths, physics, chem)
Kind regards, Tymen Wortel, Perth, Western Australia.

#3

ADX is a great indicator for determining a trending or ranging market. It is recomended by many top authors (traders) but I myself, like many others, have been switching to pure price action using candlesticks, S&R (Trendlines on Monthly, weekly, daily & 4hour charts), and a few key MA’s. The only indicator I use is MACD histogram to look for divergences between price. Good Luck to you. Below is a good read on ADX if your interested in reading about it. It’s actually a great site to teach you how to use all the indicators including some custom ones written by Van Thorpe like Force Index, etc…

Topgun

Incredible Charts: Directional Movement System

#4

Hi Tymen,

thousand thanks for your reply!
I read the article about search for the Holy Grail. Very interesting and useful! Got the point – it is also like, for example, when one wants to learn a language – when instead of actually learning (reading books, listening e-radio, writing letters, speaking over phone, etc.) he/she is running around the bookstores in search for the best dictionary. :slight_smile:

The article on Candlecharts was great as well. There is, however, one major issue making me hesitate when considering the use of Candlecharts:
Being Consistent & Objective – I have got the impression that spotting a typical “open position” Candlechart pattern might be not that straightforward as with using a Technical indicators (e.g. If you define that you go long only if RSI exceeds 50, then it is very easy to be sure when you have that condition 100% fulfilled – i.e. easy to be consistent and stick to the same rules).
But let’s see – perhaps I find a good answer to this as I move forward with readings in this area.

topgun_68,
thank you for the advice as well. The site on indicators indeed seems very useful. I will definitely have some hard times in making a decision as to which road to go first… But experience comes by doing, I believe :slight_smile:

Good luck to you as well!

#5

To Smouke :

I can assure you that candlestick patterns are very easy to apply. The pattern you are looking for is either there or it is not. It is that simple.

If the pattern is there then you trade the next candle. You trade it in the direction that the pattern commands.

Profit as you watch live!

Kind regards, Tymen Wortel, Perth, Western Australia.

#6

Hello Tymen,

thank you once again!
Let’s see what October brings (my current earliest expected time of starting live trading). Hopefully, the candles will indeed shed some light in its dark evenings :slight_smile:

Best regards,
D.

#7

To Smouke :

I like your answer. We are on totally opposite end of the planet. This technology is amazing.

All the best to you.

Kind regards, Tymen Wortel, Perth, Western Australia.

#8

Very hard to find exit indicators, and then there is the “greed” factor as well. My best exit “indicators” are the support and resistance levels on the Daily, Weekly and Monthly…

#9

Tymen, thanks for sharing your insight on Candlesticks. Are you still using GMMA? I was also wondering what your full trading strategy is (and whether you are Intraday trading). That is, do you look at multiple timeframes to determine trend, and do you use Pivots or some other form of Support and Resistance indication? Are you only using Candles exclusively? How do you determine Entry and Exit points, Stop losses and Profit potential.

Thanks

ps. I apologize if have posted this information elsewhere and I have missed it.

#10

Tymen - I read the links, very interesting. You mentioned candlestick books - any suggestion as to a book for the novice. I saw one in a bookstore but it was so technical and loaded with mathematics that I could never follow it. Your links helped and so does Babypips school but a book is easier to read under the backyard shade tree. Thank you.

#11

Hey Tymen,

I just found it amusing when I read about how you used technical indicators and when you went long you got screwed. I thought to myself, by golly if he realizes he is always losing when it says long why doesn’t he just do the opposite of what he thinks he should do :slight_smile:

Just like how you find a bad trader and do the opposite of him until he is on a hot streak :wink:

Now to the topic at hand. Indicators I use include CCI and Moving averages (5, 21, 55, 100, 200). I also use Fib. But honestly it is all about reading price action and candle sticks and fundamentals. I like to use technical indicators to confirm my positions I am in. However, this usually takes a few days before they do such! So you can how lagging they can be, especially CCI. The best thing you could do for yourself is trade without indicators. If you can trade without them then you are depending on yourself instead of indicators and then you can take responsibility for your actions or blame your broker like everyone else :wink:

#12

Dobro,

Steve Nison is generally acknowledged to be the man who brought candlesticks from Japan to the West. He is the self acclaimed authority on Candlesticks, and you couldn’t go wrong reading his books. Stephen Bigalow and Gregory Morris are two others who teach candlestick charting. You can find their websites by Googling. There is a tremendous amount available for free on the internet, and Tymen has posted a couple of good websites in other threads.

Good Luck

#13

To Dobro :

The standard reading book is Steve Nison’s book “Japanese Candlestick Charting Techniques”

I have looked through this book - it is big, heavy and expensive but regarded as the Bible of candlestick work.

It is easy to read - no great difficulties.

I do not own a copy, instead I have a book by an Australian author…The Secret of Candlestick Charting by Louise Bedford. An excellent book.

Most Candlestick books should be good. Keep away from mathematical books - candlesticks are very simple.

However, most of my learning came from that website :

Japanese Candlestick Charting Explained

This website is unique because it cataloges the candlesticks in groups in order of effectiveness. This is EXTREMELY useful. I only use 4 patterns for long and 4 for short. They are only the STRONGEST patterns.

That is 8 patterns - plenty - forget the rest. Always stay with the highest probability patterns. Never use the single line patterns (too tricky) But always use 2 or 3 line patterns.

Hope this helps.

Kind regards, Tymen Wortel, Perth, Western Australia.

#14

To Swordofrue :

Excellent commentary!

There was a poster on this forum some time ago who consistantly found that his trades went the opposite way that he traded.

So he posted that you could pay him a fee to ask him which way he traded. He then commented that if you did the opposite of what he did you were SURE to make a profit! :stuck_out_tongue: :stuck_out_tongue: :stuck_out_tongue: :smiley:

I do not know if anyone took up his offer, but I know how he must have felt!

Kind regards, Tymen Wortel, Perth, Western Australia.

#15

Now a major post to Winner :

I explain in fairly full detail the method I use in the thread FOREXTOWN - “[U]Indicators for scalping - Please post here[/U]” by Iinzall.

I have two large posts on this thread and the 2nd is the detail of my method.

I could copy/paste it again here but I think that the Moderator, Pipcrawler, may may not be too happy at me taking up large amounts of data space on their website for repeat information. He has edited me several times already.

The thread is current and I will be adding much more detail to it because other posters there have asked me to post screen shots.

This is still to come.

I have thrown out the GMMA with all the other indicators and, yes, it certainly is intraday trading.

To use my approach, your broker must be happy with scalping although there is plenty of potential for your trades to run.

See you on the other thread!

Kind regards, Tymen Wortel, Perth, Western Australia.

#16

Thanks Tymen,

I was going through all of your posts and came across the other thread just a couple of minutes before I received your reply. I shall be avidly looking forward to your future posts with screenshots.

#17

Hi,

regarding the candlestick charting patterns - does it make any sense if we are looking at 15min bars? (in most articles a single candle represents a whole trading day = 1 day)

“To be successful, a day-trader must have the discipline of a machine, the instincts of a fox, the emotions of a rock, the skills of a surgeon and the patience of a saint. (And a little luck wouldn’t hurt either.)”
/J. Bernstein/

#18

Smouke

Candle Stick Patterns happen, regardless which timeframe the actual Candle represents… ;o)

Have to keep in mind that Candles are nothing more than the open, high, low, and close prices. Just laid out in a visual format, so the eye can pick up patterns, which you might not see just staring at the physical numbers themselves.

So if your Trading on a Daily timeframe, the 5 minute might not really make much of a difference to you, as the 12 hour or 4 hour would.