STEP. Reference Indicators for Added Confirmation

Transcription

1 7 Using indicators as a method of confirming your other thought processes is a very prudent way of reassuring yourself you re on the right track, but remember, indicators are not perfect. Using indicators alone as a method for market entry and exit is a quick way to give up your holdings to someone else. Reference Indicators for Added Confirmation [A]ll these systems, methods, and schemes are designed to do one thing, and that s to know if the market is going to rise or fall...when it comes down to it, it really is that simple. STEP As with any industry, this industry is loaded with hokey pokey formulas, systems, methods, processes, schemes, and routines on how to trade for success. Just keep in mind that all these systems, methods, and schemes are designed to do one thing to know if the market is going to rise or fall...when it comes down to it, it really is that simple. Is the market going to go up over the next six to eight weeks, or is it going to go down. Indicators have their place and can be a very important tool. You will find, as I have found, that most of them do exactly the same thing but in just a little bit different manner. They concentrate on different variations of the market s moving average, then they display this information to you in interesting and new ways. They give them foreboding names like Stochastics, %R, CCI, ADX and MACD, etc. Don t get confused by all these terms and variations. People often ask why I don t have more indicators built into my Track n Trade software applications. My answer is always the same: How many different ways do you want me to tell you that a market is overbought or oversold? They all tell you basically the same thing, with just a small different twist to each one. The more indicators you have, the more confusion it throws at the problem. What do you do when half your indicators are telling you, Buy! Buy! Buy! and half your indicators tell you, Sell! Sell! Sell! This to me is simply a good way of someone justifying a loss in the market...you will always be able to find an indicator that tells you what you want it to say. If you want to go long, look, and you ll find an indicator that will confirm your notion. Want to go short? Look some more, you ll find one that tells you to go short. Did you go long when you should have gone short? Simply justify your loss by pointing at the other indicator. It said to go long, so I did...that damn indicator lead me astray! Or when you make money, find an indicator that

2 7 Reference Indicators for Added Confirmation agreed with your position. Wow, I love that MACD indicator. It made me a ton of money last week. I m so smart for watching the MACD! Keep in mind that indicators can be used to help you make successful trades, but also keep in mind that they are not infallible. They usually work very well in strongly trending markets (markets where you generally don t really need their help anyway), but they don t work as well in other types of markets. Remember the words of Mark Twain: There are lies, damn lies and statistics. There are lies, damn lies and statistics. Mark Twain. Most indicators were derived from some person s delusion of grandeur, believing that he could have the computer create some wiz-bang mathematical formula that could predict market direction. The best indicators survive and are implemented into computer programs, such as my Track n Trade Pro application. The rest end up on trading room floors and are swept away with the losses they produce. But still, even the best indicators only work when the markets are in perfect harmony with their formulated math principles. It is for this reason that I only reference indicators as a confirmation tool of my overall trading plan. I don t attempt to use them as sole buy and sell signals, which have the effect of whipsawing me in and out of the market. Sometimes you would swear that all indicators were created by hungry, unscrupulous brokers, because if you trade based solely on the buy sell signals of your favorite indicator, you would probably make your broker rich. Many times, you end up with trades, jumping in and out of the market every day or so, with draw-downs that could kill almost any account. Assignment The following charts have been analyzed for a formation, trend or retracement first and then have an indicator shown to help confirm the other tools. Take a look at the examples and then complete the activity on page

3 - 73 -

4 - 74 -

5 - 75 -

6 - 76 -

7 - 77 -

8 Activity 7:1 Analyze the charts below, anticipate market direction by defining a trend, retracement or technical formation. Does the indicator displayed confirm your analysis?