Divergences: Indicators?

[ant]

Hi All,

Very good posts by many here. I don't really disagree with what has been said about indicators here, but I'd like to add my thoughts to the thread. I don't get caught up on what's an indicator and what's not indicator. For me, what's important is whether there is lag and whether the "indicator" is based on market-generated information, such as the Market Profile, Price, Volume, Ticks, Trin, Breadth, etc. In general, I don't refer to Market Profile and market internals as an indicator, but it is all technical analysis. For me, an indicator is derived from market-generated information, such as price and volume, and has lag.

These days I don't use indicators much because I prefer to trade using Market Profile and market internals. But like I've said before, indicators can be useful in helping a trader interpret the price action in a chart. Sometimes it is easier to see a pattern, momentum, price impulse, OB/OS condition from an indicator than from price itself. There's nothing wrong with that. But make no mistakes about it, everything an indicator shows is right there in the price chart.

The problem with the use of indicators is in the way that most traders use indicators and what they expect to get out of them. From what I've seen, many traders tend to use too many indictors, jump from indicator to indicator, and/or experiment with different indicator parameters looking for the holy grail. They try to use indicators for buy/sell signals without really knowing how to interpret what the market is doing - not everyone, but most I think. This is where I think the criticism of indicators is valid. Perhaps misplaced though... One thing I believe wholeheartedly is that new traders should learn to read price action before relying on technical indicators. I will also go as far to say that trading based on indicators alone, without market understanding, is not a long-term strategy for being a consistently successful trader.

Kiwi, you contributed a very good post and I agree with most of it. I also agree that there is no lag when using a level as support/resistance. However, my issue with using a moving average as support/resistance is the reliability of the MA itself. Why should an arbitrary MA provide support/resistance for price? Because most traders use it? For me, that's not a good enough reason to risk my money. From my experience, support/resistance derived from Market Profile, with market understanding, is far superior to a moving average or any indicator that I have come across. Personally, I know that I could never trade large size using a strategy that is based on the "squiggles and wiggles" of what I consider to be indicator. I just cannot put that much significance on an indicator, but that's just me. However, with Market Profile, it's different. Market Profile suits me very well.

No doubt that I am pretty fond of Market Profile, and I would even say, that it is probably the best and most original contribution to technical analysis over the past few decades if not longer. But Market Profile has its lag too, and as a trader, I need to know the TA tools I use inside out and when they don't work as well. Market Profile is great for determining value when a market is in balance, but Market Profile is not as useful in finding value when a market is trending. When a market is trending, you cannot determine value because the market is in search of value, otherwise it would be facilitating trade within a trading range. I say MP lags in a trend because price is either chasing value, or vice versa.

For the record though, I will say that my favorite indicators are the Keltner Channel with a 20EMA, a modified MACD(3, 10, 16), and the ADX(14). And occassionally, I'll use them for confirmation, especially on a tick chart, but NEVER to give me a buy/sell signal.

Bottom line for me is would I quit my job as an Engineer to trade using a strategy that is heavily reliant on indicators? No, I would not. I do not see long-term trading success in that scenario. But I would, and will, to trade market development and market structure using Market Profile. I've bought into this whole Market Profile thing, hook, line, and sinker.

P.S. I've been trading part-time for about 2 years and this is my opinion thus far. I started with trend-following mechanical systems, moved on to discretionary trading using the indicators listed above (after learning to read price action) and multiple timeframes, and now I am using Market Profile, which has made all the difference in the world in my trading and has given me a huge trading edge. Like most of you, I daytrade primarily (whenever I get the chance).

[namstrader]

muy bien amigo. I am trying to get it recently.

[feb2865]

Guys

This is probably the most talk-about subject in the whole entire trading universe. Indicators followers VS price action followers

to be or not to be??

So , market profile is better tha EMA'S?

or perhaps pivot points are better tha big mac with Bollinger bands on top?

Here's a little story

Mr. Mark Rubens. 81 years old, Active trader for more than 50 years. My mentor. Yes he trades electronically like us. If you ever go to his house and check his stuff, you won't find any charts whatsover...anywhere

I told him once "Markie, why don't you throw some charts to make your life easiser" I said

He responded "Raul, to me market is price, not figures"...I shot my mouth, put my tail between my legs and I have never, ever mention the subject again.

Do you think he's wrong??? well after 50 years doing the same, I sincerely doubt it

will I ever trade with no charts??no I can't They make my life easy...That's Markie's fingerprints, not mine.

Listen, every single trader, investor, etc. use some sort of "indicator"

Whatever it is...you gotta have something that pop out a signal, don't matter if is leading, laggin' piggin' shoffin' ...I bet you have to have somethin'


Bottom line: If your EMA is crossing with your SUMA and your CUMA is slopin' down to your OMA for your entry and at the end you are profitable...hey my hats off to you!!!! what's wrong with that?

But if price is violating your S/R line and it has to be done with half of your left eye closed and only while your jumpin' with your left foot at exactly 10:067 AM for your entry ....and you're profitable...my hats off to you.

It's all about profit my friend otherwise, Walmart is always hiring .

People , you MUST have your own edge if you're going to be succesful in this business. That takes time, patience and be persistent to be developed. After that' you will be astute enough for not to let the market(AKA Pit traders) fool you, like it(they) does all the time. If you don't believe me, well keep plugging your umbillical chord to every "strategy" you see outhere and after you're exahusted thousands of dollars , then come back and read my post again.

My system, strategy method etc, will make money for me, but will not necessary make money for you. This is like fingerprints my friend and that's exactly why traders should stop looking for the holy grail because it doesn't exist. Once your develop your own "edge" stop looking for more. You don't need any more "technique" you need to start trading.

Indicators are just guidelines... what are you going to do when you get the signal?? to me, that's the heart of trading

I rely on support and resistance for my trades. Plain and simple. That's all I use since 1983..yes plain vanilla. Should I tell Kiwi that he's wrong becuase he's using MA crossovers? I am not entitled to, besides I am sure he's profitable

Should I put an entry because a S/R lines has been crossed..hell no

It's not the market crossing the line . Its how the market is going to behave once I get the signal what matters. This is my fingerprint. My system. This morning 11/03/2006 ER2 went straigth to the top @ the speed of sound at the opening. Did I trade? no..why? becuase it went to fast and the market MUST give me signal if it crosses the line otherwise I'll stay on the sidelines.


You have no idea how many people got screwed up on that rally thinking that the market will continue trailing up. Iv'e seen that many times. But because I have a system in place and I excise discipline into follow my system to the core, my stack is on my side and not in somebody else's pocket.

My friends, this type of discussions ends up in nothing 99% of the time. Do yourself a favor and keep perfecting what you're already have. Be open to new things. But if they don't work for you, keep moving on with what you already have.

Raul

[MrPaul]

	Quote:	feb2865
	...Once your develop your own "edge" stop looking for more. You don't need any more "technique" you need to start trading...

So true...

[Soultrader]

Amazing posts guys. Indicators vs discretionary trading.... hard topic indeed.

As I gain trading experience each day, I have personally found that the simpler the method the easier the trading. Im not sure if I mentioned this before but would like to post it again.

A few years ago I was on the phone with my mentor discussing market outlook. In the middle of our conversation her 8 year old daughter interupts and says, "Mommy, why are you so good at reading other traders." This comment coming out of a 8 year old blew my mind. How true can she be!

We are trading other traders. I can not move the markets... the group of big players move the markets. My job is to figure out what they are looking at and follow their footsteps. I try to ride the intraday waves that they move. I often ask myself, "What are they looking at? What are they trying to do?" Why? Because they are usually right.

A trading signal off a EMA is somebody elses bread and butter. If they make money of it good for them. I cant make money of it because its not part of my sytem and methodology. Support and Resitance points, MP, and, pivots are what I am after. Linda Raschke mentioned how she knew a trader who made a decent living trading off one setup. Thats all we really need... one decent setup that gives us an edge.

Big players like to watch for key price levels. Thats when they will step in to buy or sell the market. Which is why I focus on price levels. I always try to place myself in the mind of a big floor trader and what he wants to do.

The difference in opinion and how traders process the same information differently is what makes the markets so fascinating. I learn something new everyday as I trade.... trading can be boring but my mind is always stimulated which makes this profession so much fun.

[michaltrade]

Very good discussions on both sides indeed!!!
Special thanks to Raul, VIP, ... for a very practial "real world" trading.

[DrPepper]

I frequently hear people talk about the importance of reading price action or reading tape. But I never see any specifics about how to learn this method. Any suggestions other than "time and experience"?

[DbPhoenix]

	Quote:	DrPepper
	I frequently hear people talk about the importance of reading price action or reading tape. But I never see any specifics about how to learn this method. Any suggestions other than "time and experience"?

Start with Wyckoff's Day Trader's Bible, attached as a pdf below. Then,

Techniques of Tape Reading

Tape Reading and Market Tactics

[BlowFish]

	Quote:	DrPepper
	I frequently hear people talk about the importance of reading price action or reading tape. But I never see any specifics about how to learn this method. Any suggestions other than "time and experience"?

Wow old thread having said that an interesting one. To me reading PA and the tape are kind of different things, though related. To me PA is about how price moves. Higher highs/lows, ledges, ranges etc. I think in the past I have posted a whole bunch of references. But a couple of quick (free) ones of the top of my head...check out Joe Ross' law of charts and The first couple of Fibonacci trader journal entries about Gann swing chartist. 'Buffy' did an article for Ensign Software too.

Theres a whole bunch of stuff by market 'old timers' (like Dunnigan for example) that are of value and 'grandfathered' this stuff.

If you want to learn about the 'tape' (which rolls volume into the mix) then as DB says Whycoff is the guy to start with. To be honest I would start with 'plain' PA as its somewhat more straightforward.

Cheers

[drsushi]

Question, I've read on this thread that everything can bee seen in price. If divergence by definition is price moving one way while an indicator is moving the opposite direction, how can divergence be seen in price alone? Doesn't the concept of divergence require a second data point or source? Also, isn't a divergence just a heads up as to what may happen and not and indication of what will happen? And, aren't there indicators that have a volume component (Klinger volume) to them so that if there is a divergence part of that divergence is based on volume. I see many posts on TL that discuss price/volume divergences. Is that not part of VSA?

I just finished reading Trading in the Zone and from what I read and from my experience of being good a losing, it's more about what is between the ears then the method. If we have hour "minds right" then the rest will work itself out as long as the method over a reasonable number of trades provides a high enough percentage of winners to make one profitable. That doesn't mean 80-90% because money management plays a roll too. It seems to me, unless I am completely wrong that the order of importance is 1. mind right, 2. money management and 3. method. Please let me know if I'm full of it.

David