armybender
Active member
There are tons of YouTube videos of people looking like geniuses when the market's trending... right? "Hey look everyone, the market does nothing but go up. I'm buying! I'm a genius!"
But there are a few videos where you see these guys admit they've blown themselves up when the market stops trending and turns into a trading range. And that highlights the fundamental problem with indicators overall - they work under a specific set of conditions, but if those conditions cease to exist they stop working.
Questions To Ask Yourself:
Have you tested your indicator under trading range conditions? Lagging indicators are designed to spot established trends. On trading range it all falls apart.
How will you prevent getting whipsawed with your indicator when you get nothing but false signals?
What You Need To Know:
You should backtest under some challenging conditions. At first glance, it does really well at keeping a constant signal during a trend, but on ranging days it provides signals that are quickly reversed at almost the same price as the prior entry signal.
In other words, you're going to get some huge whipsaw effects from a trending indicator if you just follow it blindly. That said, if anyone thinks you should just follow buy/sell signals from an indicator, they clearly haven't studied trading... but I know a lot of people do think that way. Then they end up on YouTube crying.
All I'm saying is that no trending indicator will be no different from others because it isn't an algorithm that has a mode-switching mechanism. It doesn't know what low or high is, and it doesn't know when it's a trend vs just a move within a trading range.
If you really wanted to round out your trending strategy; you would incorporate some form of a mode switching flag, and then move to an indicator that does well in ranges.
IF you could do that (that part is tricky) then you'd have something pretty good, but as of right now I think anyone would be challenged to trade with trend-following indicators on range days. And it's important to recognize it is a trend-following indicator and that by design it doesn't contemplate ranges.
But there are a few videos where you see these guys admit they've blown themselves up when the market stops trending and turns into a trading range. And that highlights the fundamental problem with indicators overall - they work under a specific set of conditions, but if those conditions cease to exist they stop working.
Questions To Ask Yourself:
Have you tested your indicator under trading range conditions? Lagging indicators are designed to spot established trends. On trading range it all falls apart.
How will you prevent getting whipsawed with your indicator when you get nothing but false signals?
What You Need To Know:
You should backtest under some challenging conditions. At first glance, it does really well at keeping a constant signal during a trend, but on ranging days it provides signals that are quickly reversed at almost the same price as the prior entry signal.
In other words, you're going to get some huge whipsaw effects from a trending indicator if you just follow it blindly. That said, if anyone thinks you should just follow buy/sell signals from an indicator, they clearly haven't studied trading... but I know a lot of people do think that way. Then they end up on YouTube crying.
All I'm saying is that no trending indicator will be no different from others because it isn't an algorithm that has a mode-switching mechanism. It doesn't know what low or high is, and it doesn't know when it's a trend vs just a move within a trading range.
If you really wanted to round out your trending strategy; you would incorporate some form of a mode switching flag, and then move to an indicator that does well in ranges.
IF you could do that (that part is tricky) then you'd have something pretty good, but as of right now I think anyone would be challenged to trade with trend-following indicators on range days. And it's important to recognize it is a trend-following indicator and that by design it doesn't contemplate ranges.
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