The fallacies of technical indicators

Simon Kloot
A free video tutorial from Simon Kloot
Trader, Blogger & Mentor at TraderSimon
4.7 instructor rating • 1 course • 1,254 students

Lecture description

In this lecture I explain why the use of technical indicators will lead to poor risk/reward, bad trade entries and even worse... completely sabotage your trading.

Learn more from the full course

Professional Trading With Institutional Supply & Demand

Learn how to trade any financial market consistently and profitably. New Cryptocurrency section added for 2018.

03:32:00 of on-demand video • Updated February 2021

  • You will be able to identify and correctly chart supply and demand zones.
  • You will know where to place your stoploss and identify targets
  • You will learn about different types of entry strategy.
  • You will understand how Investment Banks and Market Makers manipulate the market and use this knowledge to profit with them.
  • You will understand the basics of risk management and trading psychology.
  • You will learn about price pivot zones, the BAR setup and how it relates to advanced supply and demand topics.
  • You will learn about advanced supply and demand topics, including compression and the "Engulf" pattern.
  • You will learn the filters that I use to keep me out of bad trades and the conditions that will cause me to scratch a trade with little or no loss.
English [Auto] The fallacies of technical indicators I must spend years chasing well technical indicator systems before I finally cleared my charts of all the junk. I'm relied on price alone. The truth is that most indicators are lacking. They follow price with a delay because they get even to move light. They actually destroy all risk reward and lead to portraying results. Let's look at some examples. The moving average crossover is probably the most widely known trading strategy by the general public. It's documented in literally thousands of technical analysis books mentioned countless times on mainstream financial media yet it's fundamentally flawed in today's markets. The main problem is it's a reactive rather than predictive way of trading. The Meffert assumes that momentum will continue after a crossover with no thought to the current conditions of the market. Probably the most famous or the cross-overs or the death Cross and the golden cross you sell when the death cross occurs which is a 50 day moving average crossing down below the two hundred leaving average and bullae when the Golden Cross occurs which is a 50 time living average crossing up above the 200 moving average. So what does this look like on a chart. You can see on this chart that I plotted where the 50 day moving average across the 200 using the yellow dots and this would have given you signal to Mensa. Now our first impressions is great but if you project where you would have actually entered the market using these yellow lines and where the red dots saw you could see that it gets you in almost when the move is over or midway through the move or even when the move is just about to reverse. Now let's compare his entering into supply demands on basically supply and demand. I will get you in the turning point rather than two lights. Like moving average cross-overs not don't worry if you don't understand this diagram straight away. We're going to be covering all of this later in the course another use of standard indicators is to measure what is termed divergence. This measure is the strength of two or more price swings with an indicator such as the castings I may see they will s.c.i in the highlighted section. Price makes a higher high but the indicated does not. This is what's known as Barish divergence on this slide. Price makes a lower low but the indicator doesn't. This is known as bullish divergence theoretically divergence most turning points in the market. However you're about to see that divergence is a common trap that leads to trade is blowing accounts OK so I've got a 60 minute S&P chart here and the CCI indicates wrong which can be used to measure divergence. Now this is a rising market and here's a circumstance where it will work. So I'm going to get a line and I say we have a low here and I love a low and the divergence indicator did in fact I Hailo which signifies that it could go up. The date we have another song live here low and a low low and the s.c.i didn't make it LOL. And indeed the market went up. Now that's all very well and good but I'm going to show you another example where you end up grinding down your account using these indicators. OK so now I've got a 15 minute speech up in a different location and not deliberately working the right age here. So we can't see what's going to happen. Now you can see that we had a low price might a low low indicates it didn't. So I'm going to put some arrows there. So we had a a low here and the indicator didn't. Now we may buy here. And what happens is it carries on down. So let's move along a little bit more you made a low. Now you might a low here and we might a low or low over here but now in the case we should be another indication to buy. So let's just put some lines in here. That's shallow. And in this one the indicator hasn't. So you might just find a boy here especially as it was also a bit of a rejection. Let's go low and it continues down again. Move along further OK. So you've got a low price consolidates makes another low that and the indicator is not following which would indicate that it should go up and cost price continues down and you can see what happens is that the indicator then follows afterwards. So this can be very deceiving. This if it happens again OK we got another example over here. We had our SWINGLER price makes novel I mean doesn't like some. And the indicator is divergent. So we think it could go up. My boy hit and well surprise surprise price continues down. You know I hope that helps and we'll move on to next session.