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The following was sent to me by another trader and does it ever sum up
the
old adage "K.i.s.s.":
"We live in an age of total computerization. With the appearance of
Omega
Research’s
Tradestation products, the world of trading has changed forever. Traders
are
now
chasing after ever more exotic and complex indicators. TS now comes with
about
150 standard indicators, and it’s programming capabilities let the user
develop
any
kind of kind of personal indicator the heart desires.
The phenomenal sales revenues of Omega Research, and other vendors
selling
similar software (such as Metastock, etc), show how far our
indicator-fascination has come. Those who own TS, or similar software,
cannot
comprehend how anyone could still survive without such software.
No wonder that software vendors have such success selling us new
indicators
by mass mailings. No wonder that new traders on this forum often ask,
“what’s the best indicator?”
What is often overlooked is the fact that all these sophisticated
indicators
rarely improve the trader’s results.
Asking, “what is the best indicator?”, is like asking Rembrandt,
“hey Rembrandt, I want to paint like you. What kind of brush do you
use?”
If you can’t paint, changing brushes will not improve your painting
much.
If you can’t trade, going from one indicator to another will not improve
your
trading much. The basis of good trading does not come from indicators,
it
comes quite different sources.
The basis for good trading comes from money management, control of
our emotions, understanding the true nature of the market and it’s
participants.
Yet, we need to do some kind of analysis, to avoid trading purely by
instinct
(which is contrary to what we were brought up to do). If we don’t put so
much
emphasis on indicators, what should we then do?
As Steve has pointed out so correctly, most indicators in use are
calculated
from data presented on your bar chart. Such an indicator cannot possibly
contain
anything that is not already present in your bar chart. The indictors
are
just
another way of presenting what’s already contained in that same chart.
The message then is clear: if you are currently trading and changing
from
indicator to indicator, stop your search! You will not find the Holy
Grail in
the
maze of indicators. Go with what you already have, and try to become
more
familiar with the tools you are already using! Pay more attention to the
basics!
The bar chart is full of hints and messages. All we have to do is learn
how to
read it.
For the new trader: Don’t worry about indicators. Don’t feel intimidated
because your more experienced peers use indicator names you have never
heard off before. Learn the basics! Buys some books that teach you how
to
work
with a chart (such as the works of Magee or Murphy)!
Try to recognize repetitive patterns on your charts! Try to figure out
what
really
makes the markets tick! Learn how to understand the mass psychology of
trading!
And above all, keep your losses small!"
Good day trading, Ira
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