Warning: Following my trades may be hazardous to your financial health. See Disclaimer.

Tuesday, June 19, 2012

Technical Indicators Can Be "Noisy"

Usually we think of chatters on Yahoo, Twitters, blog sites, and CNBC as noises.  But to me, excessive technical indicators are noises that are even more bothersome.  As I enter a trade and set my stops, I'd realize the stop is just below a moving average -- if it's not on daily chart, I'd see one on the 60 minute chart. As a result, I tend to "stretch" my stop.   Similarly, when a profitable trade has yet to reach my original target, I'd see that it's right at a Fibonacci level;  as a result, I tend to get shaken out at that level prematurely.  Without me knowing, these "noises" actually cause me to take profits too quickly, and hold on to losses too long.  These also could get in the way of order entries.  I wanted to go long on a breakout, but the "volume" is not confirming.  Of course it turned out to be a summer day low volume rally and I'd miss the boat.

Here's a cursory list of the indicators I normally use, multiply them by the various time frames (weekly, daily, 60 minute, and 5 minute):

  • Exponential moving averages (EMA): 10, 20, 50, 200
  • Simple moving averages (SMA): 10, 20, 50, 200
  • MACD
  • STO
  • RSI
  • DMI
  • Horizontal support/resistance
  • Trend lines
  • Channels
  • Fibonacci retracements 
  • Fibonacci extensions
  • TICKs
  • Volume

What can one do with these type of noises?  I don't know.  It's an art.  One can close one eye and pretend these TA indicators do not exist, or unlearn one's knowledge.  But it's a matter of time that these indicators play a key role as inflection points.  For example, one day you feel clueless why that market bounced; then you realize it bounced on the 50 day SMA while the whole time you watch only the 50 day SMA.  

Again, one either gets bogged down with indecision if one includes too many technical indicators, or one can become blindsighted at times by ignoring too many of them.  Take your pick!!!

Market has gone up substantially with the Greek election over the weekend 2 day ago.  Now it's faced with FOMC meeting tomorrow.   The_Real_Fly has claimed victory after recovering 18% within just last 2 weeks!! He's now 15% YTD and raised cash to 40%.  Amazing.  TraderFlorida continues to attack from the short side, but for day trades only.   All signals are still flashing BUY, but SPY is at a major resistance level where my final add would have been 2 weeks ago when signals were still bearish.  STO on both daily and 60 minute charts are overbought above 90.  RSI is overbought on the 60 minutes, but ADX is high-trending at 33.31.  I am bogged down with indecision!!!   Cash is king, but surely I don't feel good missing the rallies from the long side in the past 2 weeks.

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