This week we asked Lee Sandford to explain why we use indicators.
“As technical analysis traders, we are looking at chart patterns to inform our trading,” Lee reminds us, clarifying that, “Indicators are simply pieces of software that we can plug into our charts to tell us what’s happening, for example whether a price is losing momentum.” In other words, indicators suggest the greatest probability of where the price is going next. Obviously this is invaluable information for traders making trading decisions.
There are thousands of indicators available. Some are free, in the public domain, and were probably developed by someone many years ago; these are very traditional indicators. Then there are the proprietary indicators that you have to pay for, as whoever developed them (presumably for their own trading) still owns the intellectual property on them. There are many different types of indicators, for example, some are lagging indicators (i.e. derived from something that’s already happened, for example a moving average line) and some are leading indicators (these are predictive indicators, derived from what is expected to happen).
Trading College Indicators
“At Trading College, we have a few proprietary indicators that we use,” Lee tells us. These include the Storyteller Indicator, the Pro OBS indicator
Taking Emotions Out of the Equation
The best thing about indicators, clearly, is that they take all the guesswork out of trading; they also take the emotions out of the equation because they limit how much subjective interpretation you have to do. You don’t need to learn about how and why the market moves, you just have to look at where it’s most likely to go and base your trading decisions on what you see.
“As technical analysis traders, we use indicators to put the odds and the probability on our side, and indicators are one of the reasons why I believe anyone can trade,” Lee says. “You don’t need to understand the markets, you just need to be able to follow indicators. When you bolt on money/risk management and time management you further increase your probability of winning trades.”
An Edge in the Market
“The point is, we always want to have an edge in the market,” Lee stresses. “And our edge is the ability to increase our odds of choosing winning trades by choosing the best indicators, and then learning how to master those indicators. As we become masters of our indicators, as we become experts at using our indicators to inform our trading, we get more profits. As with any industry, experts get paid more in the end!”
Indicators, it seems, are like signposts, that offer traders a mapped-out route. If you follow the route, and read the signposts, you’re most likely to find the treasure… so let’s not go off course, let’s stick to the map and read those signposts!