Today I want to talk about indicators.
All traders have used indicators at least once in their operations, but not everyone knows how they work and why they should be used.
The best way to understand something is to find answers to the questions yourself.
Next, I will give you some questions that you will need to answer in order to understand how the indicator works.
Most beginners begin their way of studying indicators with books or articles on the Internet, where they are told: buy here when this line crosses this, when the indicator enters this zone, and so on.
With such a study, the trader does not understand how the indicator actually works, which indicators are similar to each other, and why the indicator gives these signals.
By answering these and other questions, the trader will be able to understand for himself whether he needs this indicator.
Our task is as follows:
1) find out how the indicator is calculated;
2) understand how this indicator reacts to changes in parameters;
3) understand what all this means in the context of market data.
Find answers to questions
If you really want to delve into the essence of the work of this or that indicator, then do the following:
1. To begin with, you can start by studying the history of this indicator.
It is best to look up the original source to understand what the creator of the indicator put into this tool. Any information will be useful in understanding the tasks that were set before the flag at that time.
2. How can the indicator help us or why is it more useful for us to use the indicator than just looking at the chart?
3. What indicators are similar to this?
Of course, it will not be possible to study all the indicators, but it is not necessary. It is enough to observe and understand where the indicators give the same signals. Therefore, we will eliminate the unnecessary repetition of signals on the chart.
4. What exactly is taken into account when the indicator is working?
For this job, you need to be able to compute or program at least in general terms. You can use special third-party programs. The main objective is to understand the details of the calculation of the indicator.
5. Change the data tracked by the indicator to see how it reacts to controlled price changes.
Examples are: a flat market, where a trend starts to emerge and then a second return to flat occurs; a game of trend strength; a flat with a big subsequent price jump; “ladder” markets; stable long-term trends and their reversals; fluctuations (for example, sinusoidal) with different periods.
6. Take the knowledge you have gained and look at the indicator on the price charts.
Watch how it reacts to price spikes. Discuss this stage of information gathering. Your goal is to see how this indicator performs on a large amount of data, and not to delve into it.
7. Now figure out how you can prove what you see in paragraph 6.
Is it possible to test this indicator manually or will a software algorithm be required to test it?
8. After receiving all the data and understanding the work of the indicator, you need to understand whether this indicator is necessary in your strategy.
It will be difficult to answer all the questions, but the benefits will be tangible. You can spend several days or weeks searching for answers, on the other hand, you will learn something that most traders do not know. You will be able to really understand the signals of the indicators and you will be able to use the right indicator at the right time, which most do not know at all.
If you don’t learn to understand and use the trading tools correctly, you simply won’t be able to trade at a plus.
Traders, if you liked this idea or if you have your own opinion about it, write in the comments. I’ll be happy