Why Trading Indicators Don’t Make You Profitable

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Bulls on Wall Street

Every new trader loves indicators. They think there is only one magic indicator that will instantly turn your computer into an ATM.

Unfortunately, this is a pipe dream sold by many trading gurus. There is no special indicator that you are missing that changes the game for you instantly. Indicators are useful, but they’re not the only ticket to your success.

Regardless of what line or points you add to your chart, there are limitations. You need to know how to put a system together and what specific indicators to add to complement your system. Sure, they can help you with certain parts of your game, but you can’t just rely on them to support your decisions.

Trading indicators delay

Whatever period you set it to, that is how long it takes to calculate a new value. For example, a 9MA (moving average) on the daily chart will not move and stabilize until the next day closes. Price action and technical analysis are real-time and dynamic. Here you can see exactly what is going on and make informed decisions in real time based on the data you are currently viewing.

There are infinite combinations

If everyone looks at the same chart of $ QQQ every day, no matter what happens, everyone will see the exact same level of resistance and will try to play off and account for that level. It doesn’t matter if they have MACD on their charts, RSI, VWAP, etc. This level of resistance is there and will not go away.

The most important support and resistance levels in the charts are visible and usable for everyone. While price action and technical analysis are the same for everyone, the indicator combinations that people can place on their charts are far from it.

How many indicators are there?

Maybe 700? 900? 3000?

The combinations of indicators and the ability to code your own make the numbers astronomical.

That’s a problem, isn’t it? Your indicators tell you one thing while the next trader will see something else based on their indicators.

The world is watching and can see simple technical analysis patterns and price movements with ease and is included by default on all charts. Follow this concept and add some indicators to your chart for your convenience only.

When to use trading indicators

The best way to use indicators is to augment your existing technical analysis knowledge base and augment your current system. Using indicators such as moving averages is a great tool to help you track trades and stay in them longer, and also to identify a trend to anticipate.

Take a look at this diagram below as an example:

Stock trading indicators

The resistance zone and hard trendline are both used to time your entries, but if the stock continues to move higher you can use something like a moving average to “hug” the price move more and give you a more dynamic trailer for To give your trade. To do this, we like to use moving averages, trailers and trend indicators on trades where normal support, resistance or trendline support levels may be too far from the current price.

Think about the type of trader you are and experiment with different indicators that can complement your game. You want to add something that does some of these things:

  • Hold in trades longer
  • Be a trailing stop when stocks go parabolic
  • Identify trend support and resistance
  • Visual identification of supply and demand imbalances

VWAP, RSI and MACD, for example, help identify imbalances between supply and demand and who, in their own way, is in control. Moving averages, as shown above, will help you stay in trades longer and can indicate some important levels of support and resistance.

While no standalone indicator is going to be the panacea for you, there is a lot you can add to your game in the long run to aid the areas above.

What to focus on

Technical analysis and price action. Real traders know how to use simple technical analysis that has been around since the invention of charts. Technical analysis concepts such as support and resistance, channels, flags, etc. are applicable as they are a representation of natural human emotions and the imbalance between supply and demand in the market. You cannot combat these mechanisms that move stocks. Supply and demand, as well as volume and price movements, keep stocks moving, and they always will.

When entering a trade you need to consider all factors, not just the indicators. You are part of the puzzle, but not the only one.

Adding indicators to your charts like EMAs, VWAP, and volume forecasts can help you see where the trends are and who is in control (buyer or seller), but ultimately they don’t replace your knowledge of technical analysis to assess what the stick will do next or show you the whole picture.

diploma

As a new trader, there are certain things that you should focus on and certain things you shouldn’t be doing. Plain and simple.

We recently released a YouTube video in which Kunal covers the 6 most important questions that new traders need to answer and understand right away in order to be successful from the start. Check it out below, this is a big compliment for knowing that:

Just take it from Jess here, a student who took the time to learn things the right way, not “system hops” in search of the perfect indicator, and put the work into it.

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