Every day, tens of thousands of traders try to make money with the help of indicators and fail to do so.. This is inevitable. This is no coincidence. Since someone has the money, that you deserve, must lose (and usually these are other traders), all popular procedures are doomed to failure. At the beginning of the popularity of technical analysis in the 1970s, you could make a fortune with moving averages and simple oscillators. Today you are mercilessly stopped, because all these indicators have on their screen and the markets produce a lot more false breaks.
The use of indicators therefore changes the markets, this is the main reason, which is why, on the one hand, we are focusing on new indicators & Specialize trading methods and on the other hand on outsider procedures.
Outdated indicators
Despite the many hundreds of indicators, that provide the modern trading platforms, these are indicators, originally developed for manual calculation. This also applies to popular indicators, like MACD, Stochstik, and so on. Your mathematics does not exploit the possibilities of modern computers. Therefore, it is important, Not to give the advantage to other traders, that they use proceedings against us, that are not available to us.
Incorrect use of indicators
Most traders try to develop a trading system from indicators. Apart from the fundamental questionability of systems, which only ever work in certain market phases, the combination of traditional processes yields little, because they are all based on the same price information. It leads e.B. to nothing, when I combine different oscillators, it would be right, to regard them as aids, to define the trend towards other methods and to combine them with procedures, that have nothing to do with the course information, that enter the oscillators, for example, with Gann, Fibonacci, Murrey, and so on.
In addition, you have to pay attention to, that indicators are also, that work well, such as.B. the Bollinger Bands, if they are generally in use, precisely for this reason produce false signals. Therefore, one must always wait until such occurs or until a turning point has actually occurred., d. h. one waits until the weak hands have been pushed out of the market. Träden is art and not science.
Neglect of market fundamentals
This includes not only the, what is captured in classical fundamental analysis, but above all the psychology of the market. The Trader, who works with trading systems, forgets easily, that the courses are made by people, who have very specific ideas and goals. These are inevitably reflected in the price behavior. Let's take a simple example: An oscillator gives a buy signal on a stock index future one hour before the close.
This in itself says little. But if the day before it is in the last hour or. the last hour and a half came to a strong rally, there is a high probability, that this will now also be the case, because obviously there is a market maker squeeze and you have to know, that they need two to three days, to be settled on the stock market, cf. Daily seasonality.
The problem of time settings
Most indicators are very much dependent on it as a result, which period of time to analyze, e.B. this applies to all oscillators, especially for momentum, but also for other indicators. This means, that the chosen period is an important point, equally important is the length of the selected indicator, whether you e.B. takes a moving average or oscillator of ten or twenty bars, and so on.
Especially the last circumstance has led to this, that in almost all technology books is optimized, so you do investigations, with which length this or that indicator works best in this or that market. All these considerations are worthless, as markets are constantly changing. Therefore, lengths for indicators are not recommended here.
Indicators show the best results only then, if they are matched to the length of the dominant cycle. Take half the cycle length or a little less. Are they longer, they have a follow-up when turning, they are shorter, so they remain in the extreme range for too long and cross the middle range very quickly. While the too long indicators reach the extremes only briefly and remain almost exclusively in the middle range.
Setting the indicator to the quarter length of a cycle, then the indicator will reach the extreme, so close 0 or 100, when the cycle just crosses its midline, so will rise or fall for about the same amount of time. This circumstance can be exploited to predict translation. What has been said applies to most indicators, especially on the oscillators, but also on many trend followers, like the MACD. This is also the reason, why traders, that do not work with cycles, familiarize yourself with the basic cycles of cycle analysis. Another lies in the usefulness of translation for trend determination.
Technical analysis of indicators
The possibility is still little used, Apply technical analysis not only to the prices themselves, but on the indicators. The possibilities are still largely unexplored.
Time selection for indicators
Markets change depending on the phase, in which they are located, whether they go sideways, are in the bull market or in the bear market. Depending on the situation, indicators require different timelines. In addition, the markets are changing in the long term: Because the framework conditions and the supply-demand conditions are shifting. So you can in no way set a certain time length for a certain indicator once and for all, but must adapt to the existing courses, to see, which time lengths provide the best results.
In day trading, this adjustment process may have to take place on the day itself, so that even here you have to work with changed lengths. In general, it is recommended, set the indicators to half the length of the dominant cycle. This advice is in principle correct, but must be severely restricted: It is rare, that there is only one cycle in the market, usually several work, so that one must also analyze with several cycle lengths. In addition, the cycles do not always have the same effect.
Half the length of the dominant cycle will only be the right choice in those phases, where this cycle also has a strong effect. This can be done with aids, as determined by the Fourier analysis. It is of central importance, from the 90% To stand out from losers in the market, also by choosing the analysis period. Fortunately, this is quite easy to do, since the mass has certain preferences, z. B. is the number 14 very popular both on days and in the intraday area at bars. This was originally based on a calculation error by Welles Wilder, the inventor of the most popular oscillator, the RSI.
He wanted to take half the lunar cycle from 28 Meetings and overlooked, that he then on 10 and not on 14 Trading days should go, because the moon also moves on days, where the stock exchange is closed. The number 14 but became the default setting, not only with the RSI, but also for most other indicators, therefore, there is still money to be made with this attitude in any indicator today. Of course, there are many others, equally popular settings, often it is enough, the usual easy to modify, to get successful signals.
Timeframe Analysis
Of crucial importance is always, consider the indicators in different timeframes, if possible, in three, e.B. for day trading, two minutes, 15 Minutes, an hour. In this case, however, it would be even better, Add daily charts, i.e. a fourth period, to be able to analyze movements between Open and Close. In this context, this should also be remembered., that the question, whether a break will be successful or not, to a large extent depends on the situation in the higher time frame. So trading the short time frame alone would be misleading.
The three biggest mistakes
Traders put themselves under the price of various indicators, which they like and overlook, that these are often indicators, who use the same information. This is e.B. the case, if all indicators are based on the price values and only process them differently. In such a case, indicators must be accepted., that do not start from courses, e.B. Sentiment indicators, Volume indicators, Volatility indicators, such as.B. Bollinger Bands, also some modern indicators are very suitable here and finally outsider methods, like Fibonacci, Gann, Murrey or Astrology.
Traders want, that the indicators behave creepy and confirm their own opinions. At 2000 Indicators it is practically always possible, some to find, which confirm the trader's prejudices. To avoid this danger of creep, that occurs unconsciously, to escape, it is absolutely necessary, that one determines one's approach to trade and all the tools in advance and does not deviate from it (this is different from aligning with rigid systems). This is not about, to banish any intuition, it can live itself out, e.B. in the variation of the means used.
It's just about, to avert this danger, which is not perceived by most traders. One inevitably falls into the creep trap, when you sit down in front of the screen and start, review all existing indicators. this very common error happens because of this, that the trader, when he has time, sits down in front of the screen and tries to predict the development of the course with the help of the indicators.
However, technical analysis is not intended for this purpose.. All procedures are always aimed at this, to give concrete signals. This trap is particularly difficult to escape, you just have to develop a mentality, which consists of, that you don't want to trade every day, but simply wait until a favorable opportunity arises. Very helpful it is here, observe different markets, because then more favorable technical opportunities arise here.
Fibonacci and Murrey on indicators
Especially with oscillators and other indicators, the between 0 and 100 sway, the Murrey analysis is suitable. You can achieve very interesting results here. More well-known is the application of Fibonacci analysis to indicators. Constance Brown is of the opinion, that Fibonacci works better, if they are calculated for indicators instead of the movements of the indicators, but better on the zones, which form the indicators.
Zone analysis for indicators
Zone analysis is an important tool and still largely unused in its application in the interpretation of indicators, Oscillators and sometimes also trend followers are particularly suitable.
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