I’d like to talk about indicators. To share some of my knowledge of what works and what doesn’t work when trying to time the market in our quest to make money.
Firstly I’d like to say that the vast majority of my best trading strategies do not use indicators at all. However I will finish off by telling you about the most reliable indicator I have tested and used to date. And it’s dead simple.
Take a look at the video or keep reading below to find out more.
If you’ve ever looked at a price chart, which I’m pretty sure you all have then you’ll know there are literally hundreds of options to add technical studies including indicators and oscillators to your chart. I’ve already mentioned that none of these at all are necessary to make consistent profits from the markets. It’s very tempting to keep adding different indicators to try and decipher a direct relationship between what the indicator does and what the price does shortly after. But it’s not that easy! If it was then everyone would be making money. There is no magic indicator!
What is easier is using signals from indicators on higher timeframes. For example using an uptick of the MACD Histogram crossing the 0 line on a daily price chart will produce a more reliable signal than using it on a 5 minute chart. The smaller the timeframe, the more market noise and more false signals you’re likely to get.
The next point I’d like to make is that many of the indicators actually tell the same story. Larry Williams, a trading legend states that his indicator Williams%R is very similar to Stochastic. After all most indicators are calculated from just price and volume.
That being said if you’ve tried playing around with enough indicators you’ll also notice that many times different indicators will give conflicting signals too. This is also bad because it leads to confusion and no action being taken, no trade being placed. And if you’re not placing trades then you can’t make money!
And the last point before I share that best indicator with you is that Indicator signals are very market dependant. What I mean by that is if you find a reliable signal that works well on one market then don’t expect it to work just as well on another. All markets have their own individual behaviour, they all move differently so don’t be disappointed or put off when you find a decent strategy only to test on another market and it work horribly.
This is very true of the indicator I am now going to share with you. It works great when trading the S&P 500 index or e mini future. However I haven’t found another market yet where it works anywhere near as well.
So the way to use RSI is to use it on a daily chart. Set the RSI to a 2 period. The default is often 14. Whenever you see the closing value of RSI drop below 10 then look to buy the market. Once in the trade there are different exit options but a straight forward one is to exit the position when RSI value closes above 70.
I encourage you to look at that on a chart and test it out over a number of past years to see how it works. You can then build a trading strategy around it.
I hope you found that information helpful and if you have any comments or questions then just ask.
If you’d like a more detailed description or demonstration of that RSI strategy let me know too.
Thanks for reading,