A little while back I wrote Being a Focused Trader on the subject of traders getting a bit too scattered in their trading and market analysis. One of the subjects was how some traders bury themselves in technical indicators. I received an email over the weekend which speaks to that same subject once more.
Hi John,
I’ve been trading on and off for about 10 yrs. with not much success. I’ve come across various so called trading programs that promise you amazing results but it is all horsesh*t! The few things I have found to be helpful are lessons that explain the vaious indicators and oscillators that can be used to determine the trend of the markets, if a given stock would be a good trade and so on.
I generally use the 20 or 50 day moving average to tell me the direction of the stock in question and back it up with bollinger bands, rsi, macd, stochastics and sometimes the adx. These all have there own characteristics that give an indication as to whether the stock would be a good trade at that time or if would be better to wait.
I guess what I wonder is using these indicators etc. is enough or if I am using too many. I basically want to be able to look at and anylize a chart to make trading discisions and not have a system to make the discisions for me.
Just wondering if this makes sense.
Thanks,
Dan C.
My personal feeling here is that Dan has too many indicators going. Stochastics and RSI are both overbought/oversold readings. MACD and the moving averages are pretty much all in the same category, and ADX isn’t that far off from there either being a trend indicator. Bollinger Bands could fall into either category, depending on how they are being used, or they could be something seperate all together. My question to Dan would be “What types of trades are you trying to identify?”
I can’t say this is necessarily true of Dan specifically, but generally speaking, traders who have loads of indicators on their charts are looking for peace of mind. They want “confirmation”. The problem is it never really comes. Even if all the indicators point bullishly there is still the chance the market goes down. I don’t personally use indicators much myself, but I can understand how they help people. It’s a question, however, of picking one or a few which specifically suit the needs of the trader and how they want to trade.
I can appreciate Dan not wanting to have a system provide signals. I’m generally speaking a discretionary trader myself. In order to “look at and anylize a chart to make trading discisions” well, you generally need a lot of experience doing exactly that. That means lots of time studying the price action and how any indicators in question act in all kinds of circumstances.
My advice in all cases is to first have a clear idea of how you want to trade (trend, range), then look to the indicators or methods which support that style. From there it’s all about practice.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
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