Do Indicator-Based Systems Work?

Mar. 30, 2022

Poor indicator-based systems.

They just get trashed everywhere.

You can be minding your own business, watching a webinar or reading a trading book, and then the knives come out.

Indicators are unreliable. They’re lagging. They’re the tools of charlatans. 

Price is the only thing pro traders use.

Is it, though?

And why is that? Aren’t indicators based on complex math based on astute observations of someone who’s observed repeating patterns in the market?

What’s wrong with using math to capture probabilities?

Plenty! At least, according the experts.

But are these nonbelievers right?

A year ago, I started a spreadsheet that details the systems we talk about in the Newsletter. And a year ago, we were talking about the Master Trend robot quite a bit.

What’s Master Trend? It’s a 100% automated system that…(gulp) uses indicators to take all its trades.

Yikes! What a scammy nightmare.

Perhaps. But let’s take a break from the ivory tower and look at the research.

On March 12, 2021, in “Making Good Use of Time”, we discussed a Master Trend strategy that uses Stochastics to get into trades. It’s trend following in nature but the trigger isn’t price, it’s an indicator. When price goes Overbought, for example, this strategy goes Long. When Oversold, it goes Short.

It does not have a profit target and a 100-pip stop. It has a timed-exit and a move to break-even. All the details were in that Newsletter.

Not having a target can lead to choppy results and the recent volatility should have been hard on a strategy like this. Plus, indicator systems don’t work anyway.

How has it hypothetically done trading 1 lot each time from March 2021 through March 2022?

It’s done well, producing over $7k of profit. See the report here.

Here’s the Curve:

This is a choppy strategy over the long-term. It has massive winning years and fairly substantial losing years. Considering the choppiness of the past twelve months (and the fact it’s a worthless indicator system), my guess was that it would have done poorly.

Obviously, my guessing needs work.

In our next Newsletter, we’ll look at a system that I did an old YouTube video about.

We’ll see how that indicator system has done.

Talk to you soon.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.