Sunday, August 9, 2009

The indicator series... Going back to the basics !

It has caught my attention that many of the traders that are involved with forex trading and particularly those involved with automated trading systems often have no idea of how an indicator works or what it is telling them but most of them rely on visually correlating some number being reached on the indicator when price reverses or some color changing on their screens to develop a trading system. I cannot stress how wrong I think this approach is to trading as it can lead to pretty disastrous merging of different indicators onto an unsound and unreliable trading system.

For this reason, I have decided to start what I would like to call my "indicator series" posts which will focus on explaining the mathematical background and initial intent of the most common types of indicators as well as some particular examples of individual indicators. What I want to achieve with this is to give people a better knowledge of what indicators really mean and what useful information can be obtained with them.

Antoher interesting thing is that when you look at indicators in a mathematical way, it becomes more logical to mix certain indicators with others and to generate trading systems that are reliable, sound and very likely to work. I will try to go into the roots of the origin of the individual indicators and tell you what they were initially developed for, what combinations of indicators actually make sense and what information we can get and how we can use this information to develop good trading systems.

I will try to write as many as 20 posts on this matter, although this number is bound to change depending on the interest you guys (my readers) may have on this matter. I think that in order to use indicators you must first understand them. Something which is vital for trading system creation. Even more, after understanding these indicators we may come up with some new ideas based on the mathematics I will explain :).

If you would like to learn more about automated trading systems and how you can evaluate experts and trade long term profitable trading systems please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed this article !


Maxim said...

Hello Daniel,

That is a really good idea!
Could you please explain the mathematical meaning of the Waddar Attar indicator, used by the God gift ATR EA,-it will be the first explanation all over the internet!


Winter said...

Agreed. Thanks Daniel.

Gabor said...

Great idea! I look forward to your posts on that topic.


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