Why I don’t use any indicator in my day trading strategy?
Why most of people get attracted towards indicators ?
Most of novice traders get attracted towards indicators because : indicators are easy to understand , easy to use and easy to automate. Means you can easily do programming of indicator based trading strategies.
But as per my experience of last 10 years in trading , indicator based trading strategies is able to generate profit in trendy market but suffers huge drawdown during range bound market…..
There are only two ways to make money in trading business.
1.Buy at low price and sell at high price
2.Sell at high price and buy back at low price.
So, there must be price movement to make money in trading business.
While developing trading strategy , professional trader has only two objectives :
1.To get OPPORTUNITY to enter trade
2.To get positive OUTPUT of that trade
Means to become CONSISTENTLY successful trader , you need :
2.Trading strategy which is able to catch that price movement
Price movement is beyond our control but developing trading strategy is in our control.
Basically there are two type of price movements :
1.Trendy price movement : where price move in one single direction either up or down
2.Range bound price movement : where price move within very short range. Generally known as consolidation of price.
There are two types of trading strategies :
1.Strategy suitable for Trendy price movement
2.Strategy suitable for Range bound price movement
On an average 30% of the time price remains in TRENDY phase and 70% of time price remains in RANGE BOUND phase.
Limitation of technical analysis is that : You can develop trading strategy suitable for either trendy phase or range bound phase. It’s very hard to develop trading strategy suitable for both market conditions….
From exchange you get price data of – Open , High , Low , Close , Volume and Open interest
We have to use charting software to do rest of calculations.
In technical analysis you can use two concepts to develop trading strategy :
1.Technical Indicators such as moving averages , Bollinger bands , RSI…etc
2.Technical Levels such as Support / resistance level , price patterns drawn from support /resistance / trendline levels
All indicators based upon mathematical formulas. For example Moving average is calculated based upon average price for that particular period.
Means first price changes then indicator value changes.
So, we can make conclusion that all indicators are lagging.
In case of technical levels , First we draw levels on chart , then after that levels either break or respect by price.
So , we can make conclusion that price level are not lagging compare with indicators.
Price level based trading strategies automatically avoids range bound market entries and give superior entry at the start of trendy phase.
Indicator based trading strategies gives late entries and late exits.
To know more about Level based Day trading strategy CLICK HERE