What is the most overrated indicator?

As you know a trend moves in waves and what you will find is that more often than not after a strong leg in a trend there will be a pullback and that pullback is about a 50% pullback. However sometimes you will get a deeper pullback and sometimes a not so deep pullback.

Using fibonacci to measure the pullback can give you an idea on how deep that pullback is and just when is it a good time to enter on that pullback.

For example: Price pullback in a bull trend is to the 50% fib level and once price hits that level it starts to resume back up. This maybe an opportunity to say place a buy stop at the 38.6% level to enter that resumption of a bull trend.

As you know in trading nothing is certain but understanding what price can do at certain fib levels can give high probability entries especially in a trending market.

Hope that helps.

Cheers

Blackduck

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I use fib a lot and I have had good success at trading bounces of the 61.8%.

Cheers

Blackduck

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Interesting post. I think your comment “Fibonacci I don’t like I think it doesn’t always work and because that, I think overrated” can be used for every indicator in that none of them always work. Even moving averages don’t work all the time.

Trading is an occupation of probabilities and the aim of using indicators is to improve the odds of getting your direction correct in the first instance and the level of travel in the second. If an indicator (or combination of indicators) gives you a 3 out of 10 success rate and your average reward to risk ratio is 3:1, you’ll be in profit and the indicators work.

If I can’t understand an indicator, I spend some time researching it and will only reject my use of it based on back-testing. Additionally, I am always looking at new indicators because I take the view that trading will reward you if you invest time and effort into your learning.

I have been using several indicators for many years and have done well from them. Fibonacci, MACD, Stochastic, RSI and ATR feature in my standard set (ATR to assist in deciding where my stop losses should go). However, I also use Ichimoku on higher timeframe trading (swing trading) and DMI when trading stocks.

The point to remember is that no indicator will work every time, just as you will never win every trade. However, if you consider that these are tools in your tool box and can be used for different scenarios (different investment vehicles such as FX, commodities and stocks, as well as timeframes and styles of trading - be it scalping, day-trading, swing or position trading), then you can learn how use them to the most profitable effect.

As the saying goes, to the man who has just a hammer, each problem is a nail.

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Ichimoku
moving averages

It was probably more a problem with me than the indicator, but I was less than impressed with Parabolic SAR

No indicators are overrated, it’s hard to understand how to use these indicators on a live chart and each indicator is good just apply and test it, you will get to know which indicator suits you the best and which not.

Indicators all have the same virtues and limitations, some greater than others. If markets always moved in identical cycles with identical rates of increase and decline and always reaching the same extremes in values before reversing then I guess ALL indicators would work just fine. But markets are not like that. Therefore all indicators will work some of the time but not all of the time.

The very name “indicator” describes their purpose, which is to highlight and visually represent the underlying features embedded in past market price in order to facilitate an assessment/projection of possible/probable future price movement. They do not actually predict the future, that is for the trader to read from the indicators’ output.

Indicators are mathematical formulas containing a number of parameters that the trader can adjust. This means, by definition, that the same input data will always produce the same output. But because markets move in very erratic and often abrupt ways, the output from a mathematical formula cannot adjust for this. Therefore an indicator will perform well when the market moves is a fashion reflecting the parameter values in the formula but will deviate when the moves are different.

Examples of this are a moving average when a market plunges suddenly or an RSI type overbought/sold signal when a market just continues steadily beyond the expected extremes.

In my opinion, a trader should first decide what information they want from the market depending on their trading style, timeframes, etc and then investigate what indicator(s) will provide that info in order to make a better evaluation of when and where to enter a trade and, perhaps even more importantly, when and where to exit.

In brief, indicators are just tools. Find the right tool for the job but remember to train yourself how to use the tool.

I don’t think that there are any that I would like to name because all the indicators out there have their own set of advantages. It is up to the trader’s requirements to decide which indicator they wish to use. What didn’t work for me might work for you! As simple as that.

the lesson seems to be that there is no overrated indicator. thanks everyone and i enjoyed @Blackduck’s detailed response about fibonacci.