What indicator doesn't make sense?
- VFX Blog
- For beginners
Modern trading platforms allow you to analyze and predict the movements of currency pairs using indicators. The widely used MetaTrader a terminal and TradingView chart in the vfxAlert program contains about 50 such instruments. This number can be increased to theoretical infinity thanks to the built-in programming languages. A large number of indicators on the chart do not solve the problem of how to make money on binary options. Let's see which of them should not be considered immediately as trading assistants.
New "author" indicators continue to fill the Internet. The demand for the services of programmers, the number of search queries for advisors and scripts does not decrease for obvious reasons:
- Trading systems using indicators are short-lived. The market changes volatility or the direction of the trend, which leads to a sharp increase in false signals, which can already be corrected by simple optimization of the parameters. We have to change the trading system.
- The number of algorithmic traders is growing. The development of technology makes it easier to use robots in trading, including for beginners who have the illusion that it is possible to fully automate profit making on Forex or binary options.
- Development of custom indicators, scripts and advisors is a separate profitable industry. In the latter case, a situation often arises that you are sold a completely non-working indicator. Let's say he got it without money, but the future user will spend time installing, testing and debugging.
There will be a long conversation with the programmer, trying to figure out what the problem is, which will lead to even more loss of time and effort, and maybe even money. The article explains how to save your resources and quickly recognize the uselessness of the proposed indicator.
1. No clear signals
With the advent of indicators, trading has become easier in the sense that the crossings of lines and overbought/oversold levels, changes in the histogram give clear signals and rules for opening a position. This is a significant advantage over graphical analysis, which requires special care when detecting patterns and constructing geometric shapes.
If there are no understandable trading binary signals on CALL / PUT, instead, it simply follows the course - it makes no sense.
The picture shows an indicator that uses, according to the developers, a complex formula for calculating entropy. It is able to determine how predictable the movement of the current candle is.
Results from 0 to 1 suggest that a high value gives 100% accuracy of the forecast. The problem is that the indicator does not indicate exactly how the next 3-4 candles, an hour, a day can end: a downtrend, an uptrend, or a flat.
If the trader does not understand how the signal is implemented on the chart, he will not be able to properly test the instrument, and indirect indicators, in no way affect the profit, can be interesting only from an analytical point of view.
2. Many profitable trades during the testing period
Each indicator author strives to assure the buyer or potential consumer (if the code is distributed free of charge) in the future profitable use of their own tool.
In the first minutes of viewing or reading the presentation, the trader should see that before him as a maximum-a new "Graal", at least – a useful tool that solves the problem of flat, counter-trend or trend trading. There should be a lot of positive transactions, and somewhere in the side should be mentioned in passing about possible losses.
Pay attention to the live trading signals of any arrow indicator. Everywhere in the figures the prevalence of profitable trades is shown. Each algorithm has vulnerabilities that give a series of losses, but which developer will honestly say about them?