If you been trading for a while you know that divergences are…
A divergence occurs when the market doesn’t behave in the same way oscillators do.
Let say the market makes a higher high (or a lower low), but the oscillator (RSI, CCI, Stochastics, etc) fails to make a similar high (or low)… that’s a divergence.
The idea is that, since the indicator doesn’t agree with the market, “something” might happen, like a major reversal, consolidation period, etc.
So here is what I think…
divergence, divergence trading, oscillators, technical indicators
Every week I get a ton of emails asking me about the “perfect” technical indicator, what parameters should I use with this indicator, etc, etc, etc.
And I always answer the same thing: “Look my friend, I dont use technical indicators and dont recommend you to use them, at least not as a trigger signal”.
Heck, I’m thinking about using a generic email template to answer this question…
Anyway… I was thinking about a way to help you get rid of technical indicators (for the reasons I explain below)… And came up with something.
So here is the deal:
Every night, before you go to bed, you need to repeat “Stupid technical indicators” five times…
Maybe by the third night, you’ll start believing it. By the fifth night, you’ll start looking for other ways to profit from the market… :D
Or maybe you can propose another solution to your fellow traders to stop relying on technical indicators?
Share your thought in the comment section. In the meantime let me show you my case against technical indicators.
forex, technical indicators
Look, you know I trade based on price action and support & resistance levels, you know I don’t use technical indicators, and you know how I feel about them.
But let me tell you something…
I’m not going to ask you to stop using them (even when it is against my thought process).
If you feel comfortable with them, use them, if they give you the results you are looking for, keep using them. Just make sure you understand how to use them correctly. Alright
I’ve seen hundreds of traders using them. Some of them nail it down and use them in their favor… Unfortunately, most traders use them in a way that actually hurts them, and what is worse, most dont realize it’s the way they use technical indicators that is stoping them from reaching consistent results.
forex, moving averages, technical indicators
Yes, you read that right, technical indicators don’t work as most traders use them: as a trigger signal.
From moving averages crossovers to RSI or stochastics, all of them were created to represent “certain” market condition on the last n-periods, and not as a buy or sell signal.
The truth about technical indicators
As stockstocharts define technical indicators, they are nothing more than a “series of data points derived by applying a formula to the price data of a security” (or any other instrument such as currency pairs).
On other words, in order to get the indicator reading, a mathematical formula needs to be applied to the last N periods.
forex, technical indicators