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Indicators that work


I thought this might be a good time to start a thread where people can post their findings regarding indicators that actually work enough of the time to allow an aspiring trader to earn a living from trading intraday.......I'll start....







OK..there is my list. You may need your invisible glasses to read mine! I actually do not know of any but they must exist. Anyone care to take a crack at this.

T Rex
T Rex,

I think this is a better approach.
myptofvu: When in Rome, do as the Romans.

It'll be interesting to see how this list populates, if it does at all. All replies should include scientific evidence (backtesting) or actual trading statements to give credibility to the indicator.

T Rex
...allow me to rephrase the premise:

Prove the raw buy and sell signals generated by a given technical market indicator produces a profit within a reasonable sample size.

I will leave the proof to the professional backtesters, of which I am not one.

although intriguing at first blush, the original premise is easily proven false with the following test:

For each technical indicator tested that does not produce a profit, inverse the raw signal and show the inverse does produce a profit.


This verification test, using the exact same raw signals as the first but simply inverting the signal, will show that the inverse also fails to produce a profit.

Therefore, the conclusion we draw is the basis of the original test is not valid.

The problem with how we constructed the test is this: every chart pattern, price/volume pattern and technical indicator is imperfect. Tested in isolation, these relationships produce a valid signal less than half the time (50%).

In order to overcome this inherent deficiency in using the raw signals generated by any single indicator/pattern in isolation, trading system developers have learned to add rules, multiple time frames, non-correlated patterns or indicators to filter the isolated signal and enhance it's performance. The result, when done correctly, is an algorithm which demonstrates a profitable return on investment. Additionally, the application of two or more profitable algorithms with reasonably low correlation between them further improves and smooths the composite equity growth curve.

The fact is, highly sophisticated algorithm based "black box" trading systems are alive and well at the high end of the trading pyramid (size and speed). Algorithms account for much of the volume in a typical trading day (well over 50%). Therefore, if you are an individual trader, no matter the method your using, your very likely trading against them every time you step into the market with a live order.

The industry as a whole is rapidly embracing automated trading systems, thus the gap between the old style individual discretionary trader and the technologically sophisticated system trading community is widening at a very rapid pace. Just as the electronic market is replacing the trading floor, the system trading community is now displacing the individual discretionary trader.
pt_emini: You are obviously a very well read person with a sharp analytical mind. Do you think as these black box systems continue to account for a greater piece of the trading pie, the so-called discretionary trader will be at a disadvantage or advantage? I personally believe a discretionary trader can gain an edge as the market becomes more automated because of the "footprints" these trades leave in the market.

It's not surprising you make the distinction between automated and discretionary trading. Most others do also. And its a reasonable thing. Strictly speaking, I am a discretionary trader, but I don't see myself as one. My methods are very mechanical although I use no signal or black box software. I believe that if one cannot be mechanical (or disciplined) in trading, consistent profits will be illusive.

Back to indicators for a moment. Do you think the discretionary trader can successfully employ conventional indicators on a consistent basis with or with or without filters. I have yet to hear or see anyone claim to do that. Can you do that?

Meanwhile, the list hasn't changed and there are over 500 members in this forum. Granted, there hasn't been much time gone since the original topic opened, so it will be real interesting to see what this looks like in a month or two.

T Rex
quote:
Originally posted by T Rex

pt_emini: You are obviously a very well read person with a sharp analytical mind. Thanks for the kind words, i have been at this a while (trading that is, not foruming... lol)

Do you think as these black box systems continue to account for a greater piece of the trading pie, the so-called discretionary trader will be at a disadvantage or advantage? I personally believe a discretionary trader can gain an edge as the market becomes more automated because of the "footprints" these trades leave in the market.
I think those that can recognize the changing landscape accurately and adapt to it will do just fine. For example: the combination of declining volatility and rising liquidity depth in the ES two years ago is a good example, we saw many discretionary traders move from the ES to the ER2 when the ES depth became a hinderence. Ironically, the depth was caused by the black-boxes...

The basic problems in trading against the algorithms is this:
1. They are faster, which tends to put you at the end of the limit book queue
2. They have a lot more money behind them, ie. a significant size advantage, thus they can use that size to push an unprepared trader out of a position, similar to the player at the no-limit poker table with a significant chip advantage using that to control the play.

Stating these two another way: They can block the trader from getting a good fill, and then push/scare him/her right back out.

To retain an edge, we must overcome those two basic problems.

Every system has a vulnerability, leaves footprints as you point out. The hope is we can identify the algorithm weaknesses, or vulnerabilities in a timely manner. Discretionary traders need to think more like computer hackers, the similarities are interesting to contemplate.



It's not surprising you make the distinction between automated and discretionary trading. Most others do also. And its a reasonable thing. Strictly speaking, I am a discretionary trader, but I don't see myself as one. My methods are very mechanical although I use no signal or black box software. I believe that if one cannot be mechanical (or disciplined) in trading, consistent profits will be illusive. very true !

Back to indicators for a moment. Do you think the discretionary trader can successfully employ conventional indicators on a consistent basis with or with or without filters. I have yet to hear or see anyone claim to do that. Can you do that?
I have one method that uses technical indicators to generate a series of buy and sell signals, which is then combined with specific rules to produce a complete trading method. This method I would rate as medium (or moderately complex) on the scale of simple to advanced. The basic method has been consistently profitable for 4 years. Early less advanced variants of the method have been so for over 15 years. At this point however, I really do not need the indicator signals, as my ability to recognize the patterns has developed to the point where the indicators are redundant. In hindsight, I suppose you could conclude these indicators were really just the tool or the lens I needed to see and learn how the market actually works.

Having said that, I have yet to find any single technical indicator, used in isolation, that can produce reliable results. In my research, and that of several other very successful traders I have collaborated with over the years, any indicator/pattern needs help in the form of rules and filters to actually produce consistent and reliable profitable results. I have an old book in my library that did some early research of the basic technical indicators (RSI, Stochastic, ect). It proved none of them outperformed a simple moving average crossover system.

The most fundamental problem with most technical indicators is they introduce lag and distortion to the price series. It is very difficult to remove both problems from a price derived indicator. The more of either effect inherent in the indicator, the more inconsistent and less reliable the results it will produce.



Meanwhile, the list hasn't changed and there are over 500 members in this forum. Granted, there hasn't been much time gone since the original topic opened, so it will be real interesting to see what this looks like in a month or two.

Not holding my breath on that one....We have some backtesters here, perhaps one or two of them will construct a few simple tests on their favorite indicator and publish the results here for us. Then we could add a couple simple rules and perhaps demonstrate the effect. DT could write a book on this subject, he is a very prolific system developer and rigorous tester...certainly well beyond my very limited capacity.

pt_mini: It's a pleasure to have an intelligent dialog with you. I have toyed with short term ema crossovers. They have merit when a big move is underway but always seem to be at least 4 ticks above/below my entries. 4 ticks is simply unacceptable to leave on the table with the tight stops and money management I employ, but other traders may be happy with that. I view it as a form of slippage.

So, how long have you been a vendor?


T Rex
pt_emini: you wrote:

"I have one method that uses technical indicators to generate a series of buy and sell signals, which is then combined with specific rules to produce a complete trading method. This method I would rate as medium (or moderately complex) on the scale of simple to advanced. The basic method has been consistently profitable for 4 years. Early less advanced variants of the method have been so for over 15 years. At this point however, I really do not need the indicator signals, as my ability to recognize the patterns has developed to the point where the indicators are redundant. In hindsight, I suppose you could conclude these indicators were really just the tool or the lens I needed to see and learn how the market actually works."

Four years of consistent profits is good. Does he method produce one or multiple setups? Can you share this method? I assume when you say "patterns" you're talking about charts, correct? Can you post an example of one of the better setups?

T Rex
T-Rex wrote:

"Does the method produce one or multiple setups?"

One basic setup within which we use 3 different strengths (weak, medium, major) to classify the setup. We use the signal strength to determine the exit target(s), in effect the signal strength controls the expected size or significance of the signal outcome.

"Can you share this method?"
The basic method combines custom technical indicators with carefully designed specific rules and filters. The buy and sell signals are very clear and unambiguous. All that is left to the user is the discipline and patience to apply the system with consistency. In consideration of the time and effort invested by myself and the other contributors in the original development of the method, I feel it would be unfair to simply publish it on a public forum.

"I assume when you say "patterns" you're talking about charts, correct?"
Yes, specific price & volume patterns on a simple bar or candle chart. In it's original form, you have a chart with the custom technical indicators. As I mentioned, over time I have consolidated the technical indicators while retaining the integrity of the original signals. One of the co-developers has encoded the method, enabling automated trading.

"Can you post an example of one of the better setups?"
I will try to put together a chart that illustrates a typical medium strength trade.

"So, how long have you been a vendor?"
lol....yeah not the most vendor friendly forum ? I try to be mindful the hostility towards vendors on the part of some folks here arises from prior bad experiences they have had with them. I think it would be unfair to expect someone who has recently lost $6000 to a swindle to be welcoming new vendors with open arms. Skepticism is a healthy response on the internet, especially when it comes to someone asking you to give them your hard earned money. This forum has become a refuge for those unfortunate souls. My heart surely goes out to those I have met here who were conned out of their working capital. Anyways, as for me, I am just a very little minnow in the big pond, offering a word or encouragement to my fellow minnows along the way. Thus, I would never presume to be qualified to provide trading advice to others. I will leave that task to the qualified experts

No sooner had I made my exit, I see you were kind enough to reply, so I'll continue the dialog you in a mutually civil, professional and respectful manner if you care to indulge.
quote:
Originally posted by pt_emini

T-Rex wrote:

"Does the method produce one or multiple setups?"

One basic setup within which we use 3 different strengths (weak, medium, major) to classify the setup. We use the signal strength to determine the exit target(s), in effect the signal strength controls the expected size or significance of the signal outcome. What are the probabilities of success for each of the 3 strengths? How many contracts would one have to trade per setup to earn at least $100K/year, assuming one took all the signals?

"Can you share this method?"
The basic method combines custom technical indicators with carefully designed specific rules and filters. The buy and sell signals are very clear and unambiguous. All that is left to the user is the discipline and patience to apply the system with consistency. In consideration of the time and effort invested by myself and the other contributors in the original development of the method, I feel it would be unfair to simply publish it on a public forum. In a thread entitled: "What would you do"? your comrades here unequivocally stated they would share moneymaking setups in the forum without qualification as if it were a civic duty or act of generosity. I respect the truthfulness of your answer although it's clearly not the politically correct thing to do here. You and I both know having a true edge is like owning a goose that lays golden eggs and people don't give those away for the benefit of their fellow men despite what they say to the contrary. Was day trading a contributor to this method?

"I assume when you say "patterns" you're talking about charts, correct?"
Yes, specific price & volume patterns on a simple bar or candle chart. In it's original form, you have a chart with the custom technical indicators. As I mentioned, over time I have consolidated the technical indicators while retaining the integrity of the original signals. One of the co-developers has encoded the method, enabling automated trading. Do you take all the trades to smooth out the highs and lows?

"Can you post an example of one of the better setups?"
I will try to put together a chart that illustrates a typical medium strength trade. Thanks, can you mark the chart with entry and expected/realized exit?

"So, how long have you been a vendor?"
lol....yeah not the most vendor friendly forum ? I try to be mindful the hostility towards vendors on the part of some folks here arises from prior bad experiences they have had with them. I think it would be unfair to expect someone who has recently lost $6000 to a swindle to be welcoming new vendors with open arms. Skepticism is a healthy response on the internet, especially when it comes to someone asking you to give them your hard earned money. This forum has become a refuge for those unfortunate souls. My heart surely goes out to those I have met here who were conned out of their working capital. Anyways, as for me, I am just a very little minnow in the big pond, offering a word or encouragement to my fellow minnows along the way. Thus, I would never presume to be qualified to provide trading advice to others. I will leave that task to the qualified experts
Glad to see you realize I was kidding about the vendor thing. But it's a real detriment to the forum for new members to be received in a caustic way with a sign on the front door that effectively says "Not Welcome" and be branded as a vendor when they don't confirm to the status quo. Who the heck in this business is a "qualified" expert?