Some stochastic questions for you to ask.
Originally posted at the forexfactory on Sept 3, 2008.
Quote:Originally Posted by RedTraderI have to agree that trading for a long time based only on trend lines, psy levels, fibo (+fan) levels, chart and candlestick patterns (of course not forgetting about the fundamental part) I reached the conclusion that all stays in the chart but a) in order to minimize the S/L risk/trade and b) to have a much more clear view on the market psychology (oh! look!, the x indicator – oscillator – has just signaled) it’s recommended to use at least one “classic” oscillator (rsi, stoch, adx etc.).
You can find in many places things like “use this indicator with at list one of the same class to confirm”. But I realized that even with 2 indicators from the same class you just waste time. Every trade implies a risk so… if the economics for that country stays like “that”, if the chart says “this”, and the indicator says “the same” so do it… if your 80% sure that the price would move in that direction then it’s good and you just open the trade.
AN INDICATOR IS JUST PSYCHOLOGY, it offers:
1. an image regarding which are the believes of the mass involved in the trades and
2. (assuming that it’s integrated in a strategy) an indication – that’s why it’s an indicator 😛 – regarding the moment when the trade should be opened.
So, based on experience, a trader could use one indicator of a certain type (if I understood correctly the context of “isolation” – at least that’s how I proceed).
IMO you need to ask yourself a few questions:
1. Why should stochastics (or other technical indicators for that matter) work?
2. Why do you need a stochastic to help you get “a much more clear view of market psychology”?
3. Since trading is a zero sum game do you believe finding the correct stochastic settings/using stochastics gives you a real edge over other traders?
A lot of traders try to keep adding indicators to a chart, or try to interpret price action through elliotwaves, fibs, chart patterns, etc. In reality there is only a limited amount of information/insight that can be gained from a chart.
People have invented hundreds of new technical indicators each with their own myriad of different settings, and other ways of interpreting the information on a chart over the past few decades. They are all playing with limited information. Are they really any closer to determining why prices did what they did?