The Secret of Successful FEAR INDICATORS
The truth is - Indicators are only what you make them. 9 out of 10 indicators lag. The rest are used by so many people that it creates a type of unconscious bias. And above all else can clog up your chart as above!
That's not to say indicators are pointless - far from it, it's more about creating a bias and using indicators or chart patterns as a confirmation instead of guidence in and out of trades. Especially in the COVID era, the markets are not behaving in any form of regular form. In the last 12 months, we have had the virus to deal with, we have had one of the craziest transitions of Presidents, In the UK - Well, Brexit. It doesn't get much crazier than this.
Unconscious biases, also known as implicit biases, are the underlying attitudes and stereotypes that people unconsciously attribute to another person or group of people that affect how they understand and engage with a person or group. in trading terms, this is how indicators and groups of people that use specific indicators. Unfortunately, there is no silver bullet when it comes to strategies and indicators. You will find tools that work in some market conditions, and not so well in other circumstances.
A lot of information you can get from an indicator is actually in the chart. *as a pure example you can spot things like Imbalances from candles prior to current price action.
as per the example.
As an institutional investor, it's easy to understand the fear and the bias of retail traders. You only need to look at sentiment from companies like Oanda and IG index - you often find as trends rally 60% of retail positions are Bearish. The reason for this is 75% of retail trading is based on indicators and strategies like breakouts, trend line touches, and moving average crossovers. Measured using Fibonacci levels. Which then makes it easy for the experienced operators to see order blocks and go hunting for stop losses.
If you look at simple indicators like RSI -
A lot of what it shows can be visualised in the chart itself.
Now I don't want to be fully negative to indicators - it's just understanding their value and not fearing the herd. It's not only indicators - patterns can either be complex and you need a mathimatical degree to pin them down to perfection (joke) and they can sometimes be somewhat subjective. Starting points, anchors, measurements etc.
Fibonacci - an amazing tool with countless indicators using it in some way shape or form. But a lot of what makes it so accurate is the psychology underpinning the market moves.
When you add fibs to charts, or measure using other tools and patterns or indicators - they create the levels based on entries and exits of many people at the same levels.
I posted an idea recently on the market mindset (click image for full link)-
The idea is that emotions can control the ups and downs of moves based on perfect entries, terrible entries, ideal exits are simple trades you wished you never took, ones that now look obvious looking back.
So in short - tools cab be useful. But you should not need to be dependant on them. Especially with market conditions the way they are currently.
To summarise - Once you have your bias you shouldn't rely on indicators nor the group chat to execute your trade plan.
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
That's not to say indicators are pointless - far from it, it's more about creating a bias and using indicators or chart patterns as a confirmation instead of guidence in and out of trades. Especially in the COVID era, the markets are not behaving in any form of regular form. In the last 12 months, we have had the virus to deal with, we have had one of the craziest transitions of Presidents, In the UK - Well, Brexit. It doesn't get much crazier than this.
Unconscious biases, also known as implicit biases, are the underlying attitudes and stereotypes that people unconsciously attribute to another person or group of people that affect how they understand and engage with a person or group. in trading terms, this is how indicators and groups of people that use specific indicators. Unfortunately, there is no silver bullet when it comes to strategies and indicators. You will find tools that work in some market conditions, and not so well in other circumstances.
A lot of information you can get from an indicator is actually in the chart. *as a pure example you can spot things like Imbalances from candles prior to current price action.
As an institutional investor, it's easy to understand the fear and the bias of retail traders. You only need to look at sentiment from companies like Oanda and IG index - you often find as trends rally 60% of retail positions are Bearish. The reason for this is 75% of retail trading is based on indicators and strategies like breakouts, trend line touches, and moving average crossovers. Measured using Fibonacci levels. Which then makes it easy for the experienced operators to see order blocks and go hunting for stop losses.
If you look at simple indicators like RSI -
A lot of what it shows can be visualised in the chart itself.
Now I don't want to be fully negative to indicators - it's just understanding their value and not fearing the herd. It's not only indicators - patterns can either be complex and you need a mathimatical degree to pin them down to perfection (joke) and they can sometimes be somewhat subjective. Starting points, anchors, measurements etc.
Fibonacci - an amazing tool with countless indicators using it in some way shape or form. But a lot of what makes it so accurate is the psychology underpinning the market moves.
When you add fibs to charts, or measure using other tools and patterns or indicators - they create the levels based on entries and exits of many people at the same levels.
I posted an idea recently on the market mindset (click image for full link)-
The idea is that emotions can control the ups and downs of moves based on perfect entries, terrible entries, ideal exits are simple trades you wished you never took, ones that now look obvious looking back.
So in short - tools cab be useful. But you should not need to be dependant on them. Especially with market conditions the way they are currently.
To summarise - Once you have your bias you shouldn't rely on indicators nor the group chat to execute your trade plan.
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.