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It’s Not About the Indicators

August 6, 2012

One of the main messages that I hope to communicate by logging my trading here is that indicators are nothing more than useful tools to help you implement a sound underlying trading concept or strategy. It’s no good having the tools if you don’t know how to use them skilfully. You need to choose the tools that you feel are most appropriate for the approach you’re trying to apply, and back-testing can help to decide this. But ultimately it is your concept of market behaviour that will make you money, not the size of the range bars you use, or the length of an MA. The best advice I can give a struggling technical trader is to focus less on fluff like indicator settings, and concentrate instead upon developing a robust and consistent expectation of price behaviour.

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Daytrading Strategy 6th August

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To try and illustrate this point, this week I’m going to use a 2-Period Relative Strength Index (RSI) indicator rather than the Commodity Channel Index you’re used to seeing on my charts. I’ll be using this in exactly the same way as I have the CCI. Will this give me slightly different signals? Sure, but over the long run I don’t expect this to matter because the underlying strategy that I use – trading pullbacks in intraday trends – is a sound one, and a missed trade here or there won’t make a world of difference.

View Today’s Charts

Here are today’s trades:

+2.00

-1.50

(+0.50)

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