Why I moved away from technical indicators and what I ended up trading with?
Have you been trading using technical indicators and found they sometimes works and sometimes don’t? If so, I feel your struggle.
It doesn’t matter whether you’re trading stocks, commodities, futures or cryptocurrencies. People use technical indicators everywhere as buy and sell signals. But I heard few people had consistent success trading using them. Some even did worse than flipping a coin.
If you are still trying to find the technical indicator that can turn your trades into profit, give up already, because it doesn’t exist.
In this post, we’re going to take a detailed look at why I decided to move away from trading on technical indicators. I’ll also share what I created that’s far better.
Why technical indicators fail
1. Most technical indicators are simply derived from the math between different forms of price and time. Sometimes they added volume as factor too but that’s pretty much it. This means it relies soly on historical price movements to predict the future. This creates the first problem, technical indicators are always delayed. The price is probably up a lot already if you see an MA crossing. Sure you can shorten the MA period so you see the indicator sooner, but that creates another problem: you’ll see a lot of false positives, and if you trade on them, they will make you bleed. But the most important fallacy of technical indicators is that they trick you to believe what happened in the past can continue to happen in the future. This has been proven wrong. In fact, almost all technical indicators fails the simple back test.
2. Technical indicators assumed a symmetrical, homogeneous relationship between price and time. This assumption has two consequences. Firstly, people assume they can use technical indicators symmetrically, because technical indicator moving in the positive direction has exactly the opposite implication of it moving in the negative direction. Take RSI (did I mention it only has a 40% accuracy?) for example, when it’s above the upper bound, it implies an overbought situation, when it’s below the lower bound, it implies an oversold situation, but if you look at the chart of any 10X stock, you will find that way more times, it’s over bought than it’s oversold and you might got tricked into selling early. This leaves too many opportunities on the table. For many it’s even worse than missing out. Secondly, people want to use the same set of technical indicators, or the same way they interpret them to trade different assets. The truth is, there is no one-size-fits-all! Different assets has different technical profiles. They depend on different conditions. The fundamentals driving the prices actions of a stock is vastly different from what’s moving a currency pair. You are not likely to have success entering both stock trading and forex trading at the same time having the same mindset. Even on the same asset, sometimes there will be a pattern shift in its technical profile making the used-to-work technical indicators start to work against you. A painful lesson I learned is that you might develop a profitable strategy on one asset but ended up with a poor performance on another, or kept profitable for a while but all of a sudden it backstabbed your account.
3. Technical indicators are abused. They are open-sourced tools publicly available for any herd of traders, as well as big trading firms, but also used as an oracle that expect to predict the price in the next day/hour/minute. Isn’t it contradictory? Economically, the fact that they are used by so many will make it ineffective. When the indicators ticks with the price, the information is instantly available via the internet across the world. The edge has disappeared. Yet, at the same time people expect it to return profit magically like a crystal ball. Some might argue, it’s not that technical indicators don’t work, it’s your choice of indicators and how you use them. Then you start to grind down the TA rabbit hole, trying to find a meaningful technical indicators combination that you can squeeze some juice out. It’s a vicious cycle. I’m speak from experience here. I spent years testing various indicator-based strategies. I can hardly say any of them works consistently. Of course, I’m not going to to exhaust the infinite number of combinations of technical indicators, so I can’t say every one of them doesn’t work. You can still continue the grind but I have moved on to creating my own private indicators which I’ll cover later.
Technical indicators at its core is pseudoscience. Can it be useful? It sure can. I myself for example, still uses moving averages to analyze price trend, but have I found anyone who relies soly on technical indicators generate profits consistently, and eventually beat the market? No. Most people who is hyped about using technical indicator to trade are just lazy, hoping to stumble across some magical combination of indicators that would make them wealthy. I may get some hate comments for what I just said, but that’s okay. Those who have been in the market long enough know that what I say is true.
What makes a successful indicator?
A successful indicator must overcome the shortcomings of a public technical indicators. It must 1) incorporate much more information than just the price and volume of the underlying asset; 2) be designed only for certain assets for a single purpose; and 3) be kept proprietary and not be publicly available.
Sounds intimidating right? I’m willing to take the challenge, not because I’m smarter, but because I’m obsessively passionate about trading and stubborn enough to believe stock market is somewhat predictable.
I’m a data nerd and familiar with all the tools needed for this challenge and I don’t mind get our hands dirty. After researching and testing for a few years, I’ve built the ideal indicator using various alternative data sources and advanced predictive algo that can deal with asymmetry, non-monotone and non-linearity. Historical price is just one of the twelve components that come into this algo.
The indicator does only one thing: it predicts the short term top of the market. It does not predict the bottom, it does not predict the top of any other single stocks. It predicts the upcoming correction of the market, namely, the major indices, SPX, or NDX, or DJI.
What’s the point of predicting a 1% market correction? Anyone who knows the basics of option trading would know that a 1% move in index price could mean a 50%-100% profit in options. If you can time it consistently, it’s MONEY. My indicator does this one thing and does it well, consistently. It has a 80% backtest precision.
What’s even better? I built it into a discord bot that will send an alert every time this indicator got triggered.
If we trade aggressively. Let’s say we put 50% of your position into a put option of $SPY, with a 80% win rate, a 1.6X winning return and a -100% return on a losing bet, with every 10 trades we are expected to double your account. Even if you are a conservative, long only trader, you can still utilize this indicator to hedge or reduce you long position when the market is near the top, so that you can bring down the cost.
Show me the money
Below are the recent alerts the discord bot sends:
On Apr 1st, it sent an alert on market top. In the next three days, the market went down by 1.74%.
On Apr 10th, it sent another alert on market top. In the next three days, the market went down by 1.88%. It dropped further afterwards, by another 1.84% before it the market bounces back.
On May 23rd, it sent another alert on market top. In the next two days, the market went up, then it dropped by 0.70% on the third day, then 0.66% on the fourth day. This is expected, because May 24 is a skippable day. You may wonder what it means. There are some nuances how to use this indicator which I will take about in another article.
Too good to be true?
This indicator is not perfect of course.
First of all, it doesn’t have 100% accuracy, but 80% is good enough to make a profit.
Second, it’s only triggered 10-20 times a year. You can’t double your account in one month, then again the next month. But if you are willing to get rich more slowly. It’s right for you.
Lastly, it has a very narrow capacity, it only covers market indices, not any individual stocks, and it certainly can not be shared to too many people, so I made it available to only our elite members, which is maxed out at 100 people.
I’m not another “trading expert” who claimed that they solved the market. But I do believe my indicator has cracked 1% of the market when certain conditions met. That 1%, although sounds inconsequential, can make millions.
Final Words
In the ever-changing world of stock trading, where fortunes can turn in a matter of hours, having the right tools can be the difference between success and failure. This indicator has demonstrated its unmatched ability to predict market tops, giving traders the upper hand in a highly competitive market.
While the intricate details of our algorithm remain proprietary, the essence of my algo’s success lies in its ability to analyze vast amounts of market data and identify patterns and correlations that are invisible to the naked eye.
The market is noisy. As an ex senior data scientist at FAANG, I believe in simplicity. You should not have to wade through a sea of endless financial reports, charts, news and articles and overload your decision making with abundant information. This indicator simplifies it for you. You can still invest in the stocks you believed in as usual (such as the Magnificent 7) and only do 10-20 more trades a year when it triggers an alert and significantly outrun the market. I have a expensive pricing, but I believe the quote from my favorite movie:
If you are good at something, never do it for free.
The Dark Knight
I know it’s not for everyone, but if you are tired of eating the loss while others are making profit. Give it a try.