You have probably heard of the acronym KISS, right? Keep It Simple, Stupid is how I learned it:) When it comes to Forex trading, this is very true.
I have seen a great many systems over the years. I have developed nearly a thousand of my own. When you are making yours you will likely make many changes along the way until you are comfortable and confident. Be careful though that you do not put too many indicators on your charts.
For instance, a CCI, an RSI, a TDI, and a QQE all have nearly the same signal. So, if at all possible, pick one, maybe 2, but certainly not all.
Why is KISS important? Obviously the first thing that likely springs to your mind is the ability to analyze so many indicators at once. If it takes awhile to find your entry or exit point, and the market isn't stopping to wait on you, what do you suppose is going to happen?
Or, what if you want everything to line up perfectly before you place the trade? Depending on the indicators you are using, and their settings, you could be sitting there waiting a long, long time and then when you finally do enter, the trade is not very profitable. Waiting for too many signals is a lesson in patience, as well as not very profitable.
These might appear as obvious reasons for limiting the number of indicators you use in your system. There is another reason that might not be so obvious. When you have too many indicators and a trade is going against you, you will actively hunt for any indicator that agrees with your losing position. Rather than closing for a loss, you will be hard at work finding the indicator that agrees with you despite the fact that price is not agreeing with you. You have effectively lit the fuse on the dynamite and are standing there holding it to see if it will really burn down to the stick of dynamite and blow up. Crazy, yes? But, you will do it!! So, be aware of this.
Of course as you are learning what to use and what to not use you might have an overabundance of indicators on your system. That is fine for demo trading. As you demo trade, keep track of what indicators you are actually using and begin eliminating the ones you are not. As more time goes by and you have less indicators, you will be able to focus on the ones that are basically the same and choose which one you prefer.
Consider this also. Do you really need a moving average on your chart to know if price is going up or down? You can find free moving average expert advisors on the Internet and if you don't know by now how useless their signal is, I recommend you get an expert advisor, plug in some crossovers you think you like, and then have a look at the results page. It is a real eye-opener. When you see the crossovers on the historical charts, they seem exciting and easy to you. What you have not figured in though, is where the price is when the crossover occurs. Most of the time it is not at the crossover and you are VERY late to the party. Don't fall into the trap of lowering the period settings of your moving averages either. When they are too sensitive they give false signals, when they are set to common sense settings, they give late signals. Hmm. Worthless?
Remember, anything that signals wrong...is wrong. Anything that signals the same as another indicator should be deleted. Determine what indicators you are actually using most of the time and then adjust them to meet your criteria. I use a few indicators but each one is set to a different period setting. This allows me to see multiple time frame signals on one chart. It is usually a math solution, but it can be a little off because of candle formation differences. It doesn't really matter though.
Have you ever used a multiple time frame indicator and noticed how the lines are drawn? You can try changing the initial indicator to a higher period setting instead and have a more smooth analysis. For instance, if you are trading 15M charts and want to see 1HR chart indicators, then simply try multiplying your 15M period settings by 4. If you are using a 12 period RSI, then rather than using an MTF indicator that draws weird, use a (12 x 4) = 48 RSI setting. Although I would also look at a 24 and a 36 if it were me. A 24 mostly mirrors the 30M chart. The 36 would be like a 45M chart, which is probably a pretty decent view:). I don't know for sure, but since 1hr candles retrace, just like any other timeframe candle, a setting of less than maximum will preserve capital.
I have probably just gone way over your head now. Sorry about that. Just remember you can be creative in your design. You can attempt to see what is going on in higher periods without using multiple charts. Finally, another trick you may not know is that you can drag moving averages and bollinger bands and stochastics and whatever other indicators you use on top of other indicators. You can create a moving average crossover inside your indicator. This type of crossover actually means something:) Just left click and drag the moving average on top of the indicator. Let go. The indicator settings box will appear. Adjust your setting and before you click okay, click on the CLOSE arrow and select Apply to First Indicator's Data. The designs you can create are awesome and more than likely will actually aid in your trading ability more than any other indicator you use.
Lastly, if you only use one stochastic, consider just moving it on top of another indicator, rather than burning up space using its own window. Or any other indicators that you can double up on and not have problems understanding.
KISS your Forex system and you will increase decision-making speed. You will gain confidence and know that when you are wrong, then you are wrong. It is not your fault, things just happen. Trust your system and you will be flexible and close positions before you marry them and effectively lower your losses. When it comes time to enter, you will enter and not stumble around looking to see if every single little thing lines up. It makes a big difference. Even if your system does not win 90% of the time, as long as it tells you when conditions have changed and you are going to lose money, and you trust it, then you accept the loss and either change direction or wait for your next signal. Taking an early loss is much better than riding it out until it is a big loss. And if your system actually tells you that you are going to lose, then did it also tell you to enter the other direction? So make sure that is what you do and more often than not, you will make your loss right back, and then some. Of course this really depends on your system settings, I know, so if you find your system whipsaws you or headfakes you, then you probably are using settings that are too low. In Statistics Math this is called your sample size, or "n". The larger your "n", the better the signal.
Keep It Simple, Stupid:))
I have seen a great many systems over the years. I have developed nearly a thousand of my own. When you are making yours you will likely make many changes along the way until you are comfortable and confident. Be careful though that you do not put too many indicators on your charts.
For instance, a CCI, an RSI, a TDI, and a QQE all have nearly the same signal. So, if at all possible, pick one, maybe 2, but certainly not all.
Why is KISS important? Obviously the first thing that likely springs to your mind is the ability to analyze so many indicators at once. If it takes awhile to find your entry or exit point, and the market isn't stopping to wait on you, what do you suppose is going to happen?
Or, what if you want everything to line up perfectly before you place the trade? Depending on the indicators you are using, and their settings, you could be sitting there waiting a long, long time and then when you finally do enter, the trade is not very profitable. Waiting for too many signals is a lesson in patience, as well as not very profitable.
These might appear as obvious reasons for limiting the number of indicators you use in your system. There is another reason that might not be so obvious. When you have too many indicators and a trade is going against you, you will actively hunt for any indicator that agrees with your losing position. Rather than closing for a loss, you will be hard at work finding the indicator that agrees with you despite the fact that price is not agreeing with you. You have effectively lit the fuse on the dynamite and are standing there holding it to see if it will really burn down to the stick of dynamite and blow up. Crazy, yes? But, you will do it!! So, be aware of this.
Of course as you are learning what to use and what to not use you might have an overabundance of indicators on your system. That is fine for demo trading. As you demo trade, keep track of what indicators you are actually using and begin eliminating the ones you are not. As more time goes by and you have less indicators, you will be able to focus on the ones that are basically the same and choose which one you prefer.
Consider this also. Do you really need a moving average on your chart to know if price is going up or down? You can find free moving average expert advisors on the Internet and if you don't know by now how useless their signal is, I recommend you get an expert advisor, plug in some crossovers you think you like, and then have a look at the results page. It is a real eye-opener. When you see the crossovers on the historical charts, they seem exciting and easy to you. What you have not figured in though, is where the price is when the crossover occurs. Most of the time it is not at the crossover and you are VERY late to the party. Don't fall into the trap of lowering the period settings of your moving averages either. When they are too sensitive they give false signals, when they are set to common sense settings, they give late signals. Hmm. Worthless?
Remember, anything that signals wrong...is wrong. Anything that signals the same as another indicator should be deleted. Determine what indicators you are actually using most of the time and then adjust them to meet your criteria. I use a few indicators but each one is set to a different period setting. This allows me to see multiple time frame signals on one chart. It is usually a math solution, but it can be a little off because of candle formation differences. It doesn't really matter though.
Have you ever used a multiple time frame indicator and noticed how the lines are drawn? You can try changing the initial indicator to a higher period setting instead and have a more smooth analysis. For instance, if you are trading 15M charts and want to see 1HR chart indicators, then simply try multiplying your 15M period settings by 4. If you are using a 12 period RSI, then rather than using an MTF indicator that draws weird, use a (12 x 4) = 48 RSI setting. Although I would also look at a 24 and a 36 if it were me. A 24 mostly mirrors the 30M chart. The 36 would be like a 45M chart, which is probably a pretty decent view:). I don't know for sure, but since 1hr candles retrace, just like any other timeframe candle, a setting of less than maximum will preserve capital.
I have probably just gone way over your head now. Sorry about that. Just remember you can be creative in your design. You can attempt to see what is going on in higher periods without using multiple charts. Finally, another trick you may not know is that you can drag moving averages and bollinger bands and stochastics and whatever other indicators you use on top of other indicators. You can create a moving average crossover inside your indicator. This type of crossover actually means something:) Just left click and drag the moving average on top of the indicator. Let go. The indicator settings box will appear. Adjust your setting and before you click okay, click on the CLOSE arrow and select Apply to First Indicator's Data. The designs you can create are awesome and more than likely will actually aid in your trading ability more than any other indicator you use.
Lastly, if you only use one stochastic, consider just moving it on top of another indicator, rather than burning up space using its own window. Or any other indicators that you can double up on and not have problems understanding.
KISS your Forex system and you will increase decision-making speed. You will gain confidence and know that when you are wrong, then you are wrong. It is not your fault, things just happen. Trust your system and you will be flexible and close positions before you marry them and effectively lower your losses. When it comes time to enter, you will enter and not stumble around looking to see if every single little thing lines up. It makes a big difference. Even if your system does not win 90% of the time, as long as it tells you when conditions have changed and you are going to lose money, and you trust it, then you accept the loss and either change direction or wait for your next signal. Taking an early loss is much better than riding it out until it is a big loss. And if your system actually tells you that you are going to lose, then did it also tell you to enter the other direction? So make sure that is what you do and more often than not, you will make your loss right back, and then some. Of course this really depends on your system settings, I know, so if you find your system whipsaws you or headfakes you, then you probably are using settings that are too low. In Statistics Math this is called your sample size, or "n". The larger your "n", the better the signal.
Keep It Simple, Stupid:))
4 comments:
Hey Demi
I am glad you found your holy grail. You deserve it after all the work you put in. I gave up for about a year (after my computer gave up!). Have you started your own business? Either way, well done. I recall the earlier days of Lydia with the QQE. Looks like she's come on since then. Take care old friend.
Mr Sahota
Thank Sahota:) Good to hear from you again!
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