Podcast:
Technical Indicators – Do they really work?
In this Video:
00:16 An email from Arthur
01:11 Technical Indicators do not help make Money?
03:25 Combining Indicators for Greater Accuracy
Technical Indicators – Do they really work? Well, let’s talk about that and lot’s more, right now.
Hi Forex traders, it’s Andrew Mitchem here. I’m the owner of The Forex Trading Coach and today is Friday, the 27th of November and I’ve had an email here from Arthur, and Arthur said, “Andrew, on your next webinar, can you tell us about what indicators you use. Do you use lagging indicators like MACD and RSI or more support and resistant and pivot point indicators?”
So let me, first of all, share with you my story about technical trading because as you probably know, I am a technical trader but when I started trading, about eleven years ago, I was fascinated by technical indicators. I had never seen, really, much, you know, about them in the past. I was just amazed by how many there were, how good they looked; how varied they looked; how colourful they looked; you know they were a really exciting way of trading. And so, what I did is I studied them, I printed out information about them; I was looking online about them, trying to find out about all the different ways of using technical indicators.
The Truth About Technical Indicators
But what I then discovered over time and to my detriment is that I really didn’t make money by trading using technical indicators, the standard technical indicators that all charting packages have. I didn’t make anything. And then, over time, as things developed, I then realised there must be a way of using a certain combination of indicators to make money – has to be! So I had to find it. And I ended up using a great piece of software actually – I don’t use it today but I really did like it – it was called trade station, which I’m sure you’ve probably heard of, and trade station had the ability to have people write code for you and optimize different indicators and go back and back-test to some really good, accurate detail in various combinations. I was making an absolute fortune in my back-testing. I was, you know, making millions and millions of dollars every year through a certain combination and I was optimizing and tweaking and I’m sure you’ve done it. I’m sure you know exactly what I mean.
But anyway, the net result was, even though I had sort of, like, robots and bits of script and things written to automate the trades for me, using the optimized strategy, I still didn’t make money in real time. And so, the thing I realised then is that I needed to do something different so I started again with a blank chart and then got to study price action and added a few certain indicators onto that. But what I realised is that almost all indicators including candlestick patterns, which I absolutely love candlestick patterns, they’re a big part of my trading but even candlesticks are, really, lagging indicators. Because, if you, let’s say, have a one-hour chart on, all its doing is showing you what’s happened in the last one hour. And so, although they are the most, probably, up to date type of indicator, I use price action not just the, you know, “what’s happened” but I use the actual price itself. You know, when was the last time it bounced at that level? I use support and resistance levels, and round numbers and pivot points, which are kind of what I call leading indicators because they are there in advance of the market moving towards those levels.
Making Technical Indicators More Effective
So, to me it’s about using a combination of understanding price action, where the price has been, where it’s likely to move to and when and why. And when you have that combination put together, not only can it help you with your entry point but also, really,
