Resolved Question
Questions on predictors in a trading system
1. How many predictors do you usually use in a system?
Do traders usually keep it simple (RSI/Stoch and moving averages) or use more than 5, possibly 10 predictors in their systems?
2. What are your thoughts on degrees of freedom in a trading system? Suppose you have a good system going when you see something on another predictor that looks like a profitable move. Conversely, suppose something you see on another predictor completely contradicts what your system says. Do you still stick to the system? Take a chance? Or just bow out and sit in the sidelines?
3. What about relatively esoteric predictors? About 90% of the TA techniques I've encountered are completely unfamiliar. Drawing from your own experience, is it worth investigating stuff like chaos and fractals and using them in your systems? Also, can something like candlestick type be used in a profitable system?
4. Lastly, how do you incorporate fund. anal. in your systems?
Thanks! Sorry if some of these are stupid questions.
over 2 years ago
Best Answer - Chosen by Asker
1. In my beginning career, I learn as many as possible common indicators. This give me the basic knowledge how indicator works. Its lagging problem, its false signal, and how it works on vary conditions. But now after some years the only one indicator I use is only THV trix. It is just for confirmation only.
Using too many indicators is not useful in my opinion. Learn how price works, its pattern, behaviour, where it usually stops and how it breaks. Price action. Price action. Price action.
2. I believe my system. When I read others prediction which is contradict, I believe my self and bear what I have to bear even when I have loss. So far my dof is only 3: Trend, Sup-Res, and mommentum. I wrote it in sequence. Mommentum is used when you need to enter in a tight range stops or to maximize your profits. Sometimes I abandon it on a very strong trend and break.
3. There are many ways to paint the cat. If I can choose, I will choose the most simple system yet powerful and fit to my personality. Forex is a complicated thing if you bring it to science. But a simple thing if you keep your patience grip your hand.
4. Well, if I trade on short term trade (below 50 pips target or day trading), usually I dont take too much on fundies. Just see where the trend goes and follow it. In a long term trade (intraday or more than 100 pips target) I do watch fundies. I need to make sure it is on my side or at least the sentiment is on my side. In a very long term trade, I also look for positive premium swap before I enter the market (not doing many trade on this kind trade though).
over 2 years ago
Answers (2)
1) As a beginner do not take too much indicators. Learn to use 2 or 3 well rather then 20. 2) Little bit the same as with question 1). But in general the rule is “when in doubt stay out”. So when your indicators contradict stay out. Trade another currency or make another plan. 3) Depends on your understanding of fractals and chaos. This surely can be effective but is not necessarily more effective then traditional methods. 4) sorry no clue
over 2 years ago
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1. A couple of technical indicators should be sufficient, otherwise you'd suffer from "paralysis by analysis" wherein you get so many conflicting signals which disable you from taking a trade. Probably a combination of a leading and lagging indicator should do. Taking note of historical and psychological support and resistance levels should also help.
2. When using a purely mechanical system, I stick by the rules. This means that, when one of the technical indicators go against the trade idea, I'd stay out and sit in the sidelines.
3. I haven't tried incorporating chaos and fractals in my trading system since I think that could complicate things too much. Besides, I don't think a lot of traders study those. I'd rather stick with the commonly used indicators since those have "self-fulfilling" properties.
4. I usually start with gauging the market sentiment and the fundamental standing of the economies before starting my technical analysis. What I do is pair a currency with weak fundamentals with one that has strong fundamentals.
Hope my answers help!
over 2 years ago
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