An interview on financial indicators between two traders Stuart McPhee and Ray Barros.
Stuart: You know a bit beforehand it gives you a bit of confidence to do the entry. On entry I also had bit of a debate about indicators and I have made my point on indicators very clear. But do you have any view about which indicator was the best one? I mean obviously there was a time back long ago where indicators didn’t exist and I don’t want to put words in your mouth.
Ray: Well at the start indicators didn’t exist and then we had RSR and a book called Near Adventures and Techno Analysis which is a blight on the technical role. The reason is everything you can do with technical indicators you can do by observations and by statistical analysis.
Now the problem with technical indicators from my point of view is that there are actually two problems. One they are one step removed from the bar chart. Bar charts are already one step from reality it’s a representation but it’s the best we have got.
We always take the best we have got and reduce it and create another area if I can put it that way to create our size and RSIs and stochcastics. The problem then becomes people stop understanding what the nature of markets are. We are reflecting the fear and greed of the players in the market and those turn out with certain patterns and they do not repeat exactly but they align I think.
Okay, to me financial indicators are probably a nice way to start for a novice because they are very clear. If you do it in a clear manner you get out of kinder garden at some point you leave indicators behind. I think there are necessary step in building an understanding of how markets work especially if you are a mechanically oriented person. At some point I would say you move out of kindergarten into college.
Stuart adds: So they are things of fascination we can know. Because I mean when I first saw charts and then I saw all these lines I was really fascinated by what are these things telling me. If I find the right parameters or conditions here I am going to have something.
But it was really something that I wasn’t quite sure of what I was doing. If I learnt what I was doing no one else would have that edge and I knew I had to have an edge and I thought they would give it to me and that didn’t work out that way but.
Ray: Well I think you identified something. I think you actually hit the nail on the head here. The fact is that people are seduced into thinking if I can just find the right tweak, the right parameter I am going to have a really simple way of making a lot of money in a real quick time. It doesn’t exist. You must understand the markets.
Stuart adds: Okay, you know before we started recording that I would just want to make this clear. I said I will ask about indicators but I didn’t want to tell you what I thought about indicators. I also didn’t know what you are going to say that indicators so I actually wanted your honest opinion I guess I echo what you said. I mean I went through the search myself I just didn’t find anything that worked. I also say if someone finds something that works for them then that’s fantastic. That’s the position you want to be where you have got a methodology you can trust it works. You know you can execute it. I just didn’t find that myself so.
Ray: Well as I said myself earlier I think there is a place for financial indicators at the beginning.
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