Indicator Systems and Why Many Fail

Once upon a time, I bought a trading platform one time that included approximately 3,000 indicators. I thought “wow, I would have to be a total idiot not to make money using these” The fact of the matter is that I was completely wrong, and after many years of trading and unforeseen drama I never could have imagined eventually scrapped using indicators all together. I have three things I look at daily: horizontal lines, diagonal lines, and Fibonacci extensions. That’s it.

You don’t need a ton of indicators to tell you what to do. In fact, many successful traders would agree that more indicators is usually a bad thing, and sticking to just a few is usually the best thing. We on the other hand, don’t use any indicators and have traded successfully for quite some time, outpacing most that do.

As previously discussed, not everyone uses a MACD, and RSI, or any particular moving average. In addition, many of these indicators have different settings, and they may or may not work most of the time. It is therefore crucial to use something that everyone CAN see; that "something" is simple support and resistance.

Here are just some of our common complaints with other methods:

Exponential/Mathematical Indicators (includes oscillators, moving averages and other on-chart indicators)
- not everyone uses any particular one
- they have different period settings which are variable and generally inconsistent
- they lag, creating unnecessary drawdown when entering positions or just bad entries all together
Pivot Points
- they have to be set to a particular timeframe, but different areas of the world have different closes; therefore, charts look different and pivots are calculated using different price points
- ambiguity over which levels will block price from following through (S1, S2, which will it be?)
- price usually only turns at pivot points when the pivot point also coincides with a local support/resistance level
- pivot points usually work the best in local markets where everyone is looking at a chart of the same close
Price Bar Patterns (includes common candlestick patterns, common HLOC bar patterns)
- not everyone looks at them
- inconsistencies in close times, especially on higher timeframes (4hr/daily close is different to one money manager versus another in a different time zone; therefore, the bar is different)
Don’t get me wrong. If used consistently over time with objective rules and proper risk/reward, several of the above items will bring you steady profits. But we are looking for better odds than just 40 – 80%.

The birth of automated trading has also unlocked an entire box of issues and concerns, for big and small players alike. Quantitative trading strategies used by hedge funds and banks have both worked and failed, much like the “expert advisor” world of the retail market. It would be great to simply hit one button once, sit back and watch the profits roll in, but the pure fact of the matter is that an extremely small percentage of these systems actually work, as the markets are being most actively traded by actual humans. Many of these systems purely lack the judgment to either get into positions at the right time, or get into positions late, creating undesirable outcomes for the investor.

The FX market is worldwide, and millions of traders are investing each and every day. A good trader needs to see what the biggest market movers are seeing at any given point in time, and executing based on his or her findings. Many, if not most indicators commonly proposed to the retail market, are simply not what moves the price on a regular basis. After all is said and done, good solid judgment and hard-nosed daily analytics pay off, and simplicity rules above all. Get back to the basics.