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 Post subject: It seems Pros use Price Analysis and Noobies use Indicators?
PostPosted: Mon May 30, 2011 8:34 am 
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Quote from sneakoner:

It seems all the Pros use Price Analysis and Noobies use Technical Indicators?
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Reposted from EliteTrader.com @ http://www.elitetrader.com/vb/showthread.php?s=&postid=3197383#post3197383
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Hi,

I'm not sure of your definition of Pros or Noobies but here's mine. Pros to me are traders like floor traders, institutional traders, hedge funds and other similar like traders. The rest of us...those trading from home are mainly "retail traders" regardless if we've been doing it for a few days or 20 years.

Most new traders that are retail will see a lot of info about technical indicators when they subscribe to their first data service. Data vendors usually advertise their products to attract new clients via technical indicators. In fact, go visit all the websites that most retail traders will use as their source of data...you'll see lots of advertisements, promotions about technical studies, backtesting, analytical tools, strategy development and so on. In contrast, very few data vendors only talk about their data without mentioning anything about technical indicator trading or price action trading.

Taking this one step further, very few will mention "price action trading" (no technical indicators) as a method of trading other than to mention "you have access to bid/ask info". Thus, they really don't put equal importance on price action trading in comparison to technical indicator trading. In fact, they'll often refer to their technical indicators as "advance trading tools" whereas price action tools get slapped with labels like "additional trading tools". Further, to most new traders...the thought of having the ability to design your own custom technical indicators is very seductive in comparison to learning about price action trading.

Yet, after many months or years, there's a realization. Most traders will fail and most will blame whatever trading tools they're using instead of themselves. In addition, after many months or years...most traders regardless if they are amongst the "most are losing" or "few are profitable"...they begin to notice things about price action itself on their charts or bid/ask screens that has nothing to do with technical indicators...new research...a new seduction.

This is usually the transformation process from technical indicators into price action trading. Simply, by the time traders have been around the block a few times...they become interested in learning price action trading and that in itself is the main reason why veteran traders tend to use price analysis whereas new traders tend to use technical indicators.

Also, price action trading via charts is still technical analysis just like technical indicator trading via charts is technical analysis. In contrast, there's another category of price action trading via bid/ask screens (no charts) and many that exclusively do such do not believe they're using TA.

Further, the few new traders that ignore technical indicators or ignoring all the advertising info they get from their data vendor or broker trading platform info via going directly into price action trading...they usually have the same difficulties with price action methods as new traders that are using technical indicator methods. Arguably similar failure rates for those that underestimate that profitable trading is more than a trade method.

My point is that new traders are less aware that there's more to profitable trading than whatever trade methods they are using whereas veteran traders are more aware about other variables within a trading plan like ---> market experience, psychology of the trader, discipline, money management, proper capitalization, position size management, proper trading instrument for your trade strategy, stress management, proper broker platform, proper trade workstation, proper trade environment, team collaboration et cetera that's known as a trading plan. In addition, new traders have a less understanding of price itself in comparison to veteran traders which is why many new traders are more dependent upon their technical indicators whereas veteran traders are less dependent upon their technical indicators or switch to price action trading (no technical indicators).

Last of all, whenever I meet a trader and I ask him/her what's their trading plan...if that trader responds via only discussing their trade method (indicators or price action) while not discussing arguably the most important variables...I know I'm talking to a new trader or an inexperience trader.

Trade methods are just a piece of the puzzle.

By the way, I'm a price action trader (no technical indicators) and I use charts. Thus, I use technical analysis.

Best Regards,
M.A. Perry
Trader and Founder of WRB Analysis (wide range body/bar analysis)
Price Action Trading (no technical indicators)
Image@ http://twitter.com/wrbtrader and http://stocktwits.com/wrbtrader

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