Clean Charts

[GlassOnion 12]

Messy charts, messy mind. Indicators are great if they are part of your system, but if not, toss them out. Our mind does a great job at filtering out anything that doesn’t support a positive outcome for us. It’s just another way our mind deals with stress.

 

Ever been in a trade that doesn’t start off so good and you immediately drop to a longer timeframe to see if it’s worth sticking around? Yeah, if the trade was wrong to begin with, turning it into a longer term trade isn’t going to save you. It’s better to just to cut your loss and move on. Or, ever get in a trade that goes bad only to realize that the indicator you had right in front of you clearly said not to execute?

 

Chart clutter can only serve to give us too much information. Our brain will simply ignore it should the information cause us pain. Yes, we’ll “see” it, but the indicator’s importance will be dimmed in our unconscious, and after the trade all we are left with is the feeling of being silly for ignoring it.

 

Strip your charts down to just the price itself. Only add a new indicator if it’s absolutely required.

 

Personally I don’t trade with many indicators at all (I trade from completely clean charts but use CCI in some cases for a specific strategy that involves it.) Nearly all of them are lagging and can only tell you where price has been or what the dynamics of the market in the recent past. You must live in the moment as a trader, remember that, so while indicators can be useful, you shouldn’t let them just add to the noise. Too much noise, conflicting signals, and you’ll end up in trading paralysis (feeling uncomfortable being long, short or even flat.)

 

Part of living in the moment as a trader is accepting that the market can and will do anything it pleases despite what it’s done recently. Think the Euro can’t go any higher? It might. Think the Loonie is overvalued? It might be… or it might continue to chug along gaining value. Indicators won’t stop a currency, stock, or anything from going anywhere. Heck, the euro has no idea what MACD is, nor does it care, it ONLY reacts to order flow and order flow isn’t only looking at MACD.

[BlueHorseshoe 10]

Think the Euro can’t go any higher? It might. Think the Loonie is overvalued? It might be… or it might continue to chug along gaining value.

 

The difficulty I have with this is that you're talking about relevance to specific instances, rather than making statistical generalisations, which is what indicators are intended to assist with.

 

I have no idea whether the Euro will go higher or lower in this specific instance. Generally, though, I know that across a large enough sample size it will conform to certain expectations (provided that it continues to behave in the future as it has in the past).

 

Because of the way market data is distributed (kurtosis, skew, fat tails, jump processes, behavioural shift etc) these models for generalising expectations do not tend to work as well as they would in a maths classroom. They often become frustratingly inaccurate. But they do still work, provided that they are based on a sound underlying concept.

 

Most importantly, the concept needs to come first, and then you can start searching for the best tool (indicator) to do the job (summarize the information that you want).

 

BlueHorseshoe

[Obsidian 10]

I usually imagine trading as fighting on a battle field..sometimes we hide, sometimes we run to save our skin and sometimes very offensive...if you carry tons of weapons, you may die pretty fast while you decide what to use