How to study indicators?

26 abr 2022

Hello everyone
Today I want to talk about indicators.
Every trader has used indicators at least once in his trading, but not everyone knows how they work and why they should be used at all.
The best way to understand something is to look for answers to questions yourself.
Below I will give you some questions that you will have to answer in order to understand the operation of the indicator.

Problem
Most beginners start their way of studying indicators with books or articles on the Internet, where it is told: buy here when this line crosses this one, when the indicator enters this zone, and so on.

With such a study, the trader does not understand how the indicator actually works, which indicators are similar to each other and why the indicator gives these signals.
By answering these and other questions, the trader will be able to understand for himself whether he needs this indicator.

Our task is as follows:
1) find out how the indicator is calculated;
2) understand how this indicator reacts to changes in parameters;
3) to understand what all this means in the context of market data.

Find answers to the questions
If you really want to get into the essence of the work of this or that indicator, do the following:

1. To begin with, you can start by studying the history of this indicator. It is best to look for the original source to understand what the creator of the indicator put into this tool. Any information will be useful for understanding the tasks that were set before the indicator at the time.

2. How can the indicator help us or why is it more useful for us to use the indicator than just looking at the chart?

3. Which indicators are similar to this one? Of course, it will not be possible to study all the indicators, but it is not necessary. It is enough to observe and understand where the indicators give the same signals. Thus, we will remove unnecessary repetition of signals on the chart.

4. What exactly is taken into account when the indicator is working? For this work, you need to be able to calculate or program at least in general terms. You can use third-party special programs. The main goal is to understand the details of the indicator calculation.

5. Change the data tracked by the indicator to see how it reacts to controlled price changes. Examples are: a market in flat, where a trend begins to emerge, and then a second return to flat occurs; a game on trend strength; a flat with one subsequent large price jump; "ladder" markets; stable long-term trends and their reversals; fluctuations (for example, sinusoidal) with different periods.

6. Take the knowledge you have gained and look at the indicator on the price charts. Notice how it reacts to price spikes. Analyze this stage of information collection. Your goal is to see how this indicator works on a large amount of data, and not to dig deep.

7. Now find out how you can test what you see in paragraph 6. Is it possible to test this indicator manually, or will a software algorithm be required to test it.

8. Having received all the data and understood the work of the indicator, you should understand whether this indicator is needed in your strategy?

It will be difficult to answer all the questions, but the benefits will be tangible. You may spend several days or weeks searching for answers, on the other hand, you will learn something that most traders do not know. You will be able to really understand the signals of the indicators and be able to use the right indicator at the right time – which most do not know at all.

If you do not learn how to understand and use trading tools correctly, you simply will not be able to trade in a plus.

Good luck!

Traders, if you liked this idea or if you have your own opinion about it, write in the comments. I will be glad 👩‍💻