Making the Indicators More Intuitive
Making the Indicators more Intuitive
Our technology officer and I had the same problems when it came to knowing when to allow a trade a bit of room to let a profit run, and knowing when to bail on a trade and re-board on the next signal. In comparing notes we realized we also had a tendency of becoming fixated on price direction and targets, and losing perspective of the oscillating nature of markets on an intraday basis.
Luckily we knew the problems, so we had a leg up on the solution, which were fairly simple. We needed to take advantage of our leading and lagging momentum indicators more. We’d already solved the problem of the higher time frame trends by way of our use of trendlines & directional lines, but there were still those times when the intermediate-term trend would bend just enough to knock a reasonably risk minded individual out of a trade, just when the lower time frame trend was getting ready to jog back in line w/ the primary trend.
What helped is we understood how to use leading and lagging indicators. We just needed to be reminded to use them as they should be used, and we needed to make them as intuitive to us as our trendlines and change-of-direction points. We really just needed to remember to take our eye off price in between the opening and closing of the candles more, and look at what the indicators are telling us about momentum.
Our solution: highlight the colors of the technical indicators as they shifted from up to down and back again. It initially sounds so simple you might laugh, but in the midst of checking off live trading decisions, it came as a nice surprise, how much more simple and intuitive it is.
In this example on this AUDUSD chart from today we can see in the lower panel where first the leading indicator on the bottom — the stochastic changes from green to orange telling us momentum is waning, followed shortly by the lagging indicator on top of the stochastic changing from green to grey which indicates the momentum from the previous rally has shifted. While this may not mean we exit longs yet, it certainly puts us in a heightened state. Once we do get the sell signal we definitely exit the trade based on the technical indicators. If we are trend traders we wouldn’t go short, but as a counter-trend trader that certainly would be an option, albeit in a weaker currency.
I”m excited that we are in the process of getting our custom charts on MetaTrader shortly so that that our clients can be on the same page with us, and not have to pay up for a premium chart service.
Jay
Jay Norris is the author of Mastering the Currency Market, McGraw-Hill, 2009 which is the text book for the intermediate level trading course offered though Trading-U.com see: Trading Courses Jay’s second book Mastering Trade Selection and Management, McGraw-Hill will be in book stores in 2011
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