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Technical Trading - Which is best - Indicators or Price Action?

I have been a technical trader for some time now, and am a believer in the fact that external fundamental drivers get built into price movements, and therefore that it is feasible to trade with a mostly ‘Technical’ approach.

However, I have recently found that my approach to technical trading might be about to change. Until very recently, I have mainly used indicators to provide my filters, signals, and triggers, etc. I am now beginning to find the concept of ‘raw price action’ much more appealing. I am still early in my research, but wondered if any other traders have also moved to more of a raw price action approach and if you have any comments or advice, or generally believe this has potential or not?

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By price action, I take it you mean OHLC pattern analysis? If so, then yes, I think this approach can be more fruitful than typical TA.

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I think both methods have their some merit. Everything that can generate profit is good in my book. In the end most indicators are build on “price action” as price and time is the only information most of us have :wink:

What is not working is throwing a bunch of indicators on a pair and “brute force” your way to a profitable backtest.
I am usually using a deductive approach with a very raw “Meta Strategy” as a basis and refine it using various improvements (entry filters, dynamic exits, volatility adjustes sl+tp, multitimeframe signals, etc.)

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Thanks @Alphatek. Yes OHLC analysis of recent bars. My view is leading me to believe that this raw data is the true market indicator. It’s just learning what works best and it’s obviously a slightly different type of EA coding that’s required compared to using indicators. But I’m getting there…

Thanks @KlondikeFX. The problem I find with some indicators is that if you are not careful, the indicators can give signals based on price action that happened some time ago (so if using 14 periods on an indicator the price action that occurred 14 bars ago), even though more recent bars might not have shown any volatility or direction. Obviously this effect can be reduced by using techniques to give more importance to the most recent bars, but ultimately, you’re never going to get any more relevant than the raw OHLC data itself. Thanks

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As I said I am not advocating to use an indicator just for the sake of it. However, an indicator can paint a picture of an overall market situation that you could use for your trading decisions (along with some other factors).
There is a lot of noise in the market especially in the lower timeframes which could make decisions solely based on the last two or three candles problematic. I am not saying use only OHLC or use only indicators. For some uses an indicator is the best fit and for others raw candle data may be better and sometimes even a combination of both.
Don’t be dogmatic imo :slight_smile:

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Good advice. Thanks. :grinning:

Hi, I can share some of my experience I got from backtesting. I backtest basically everyday, because I have so many ideas and I really like testing. My goal is to find a filter that would prevent 10-15% of losing trades. I am watching a couple of EMAs, trend direction on various TFs, trendlines, flipzones, weekly H/Ls, basic candlestick formations, SD zones and odd enhancers for them etc. None of them can be used as a single filter that has probability much higher than 50-52%. What I found useful though, is to watch trends on various TFs and it theyre aligned, it helps. Also when you can find a couple of confluences like flip zone, swing H/L, weekly H/L, probability may be slightly higher.
But IMO, you can improve your results with better money management. E.g. some time ago I traded with risk-to-reward ratio of 2 - it was just because I decided it would be like that. Then I thought what if other R would have better results? I calculated results for every R from 2,0 to 5,5 and found out that R 3,5 gives me about 50% more profits with only a slightly lower win%. Hope that helps.

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It’s good to see you here @Carousel46, thanks for joining the discussion!

I will gladly help if I can or share fragments of my experience.:slight_smile:

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The strategy or method used is not very important (in my view) I know a trader who only trade a Ema and make money and have good results, the base is to be simple and easy, and feel good about your strategy.

I Prefer Price Action.

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hi everybody,

cool to have this forum.

Personally I currently trade using only the charts with the 20 ema with no other indicators. For me it has been a slow learning and improvement curve but it is clearer for me to make trading decisions this way.

An additional point to raise here is the difference between algorithmic and discretionary trading. Raw price action lends itself better to discretionary trading since it is more difficult to identify patterns and general price action context (for several time frames) in an algorithmic way, without turning to pattern recognition methods while the use of indicators can lend itself better to an algo.

I think (and in the process of researching it) that using some tools from machine learning, maybe I can turn my price action trading to be semi-automatic, but I am still getting there…

At the end, IMHO, raw price action is the closest we will get to be exposed to the actual “order book” and order flow of buyers and sellers.

I am considering to use for shorter time frames (<= 30m) an algo. approach using mainly indicators and discretionary trading for 1h, 4h and 1d using raw PA but it is still just an idea (due to the vast difference in signal to noise ratio in the different time frames).

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[off topic]

Hi @TradeSignalMachine ! :slight_smile:
I am interested to increase my investment on WFJ but I cannot do that without more infos about your strategy, can you describe it on a dedicated topic?
Thanx in advance!

Hi @CavaliereVerde
First of all thanks for your current investment. Sure, I don’t mind writing a small piece of my system. I’ll get something written down over the next day or so and then post it.
Thanks

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@CavaliereVerde You can find details here

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