Today, I will share about how to use technical indicators in a special way, which means you will be creative and use it in your own way, and unlike anyone else.
First, you will ask: WHY CREATIVE HOW TO USE TECHNICAL INDICATORS? Why not use it the way the theory suggests?
Here are 2 main reasons:
- Every technical indicator has a lag, it is formed on the basis of price. So, the price comes first, then the technical indicator is formed. Our job is to forecast the price, if using technical indicators, we are looking at the result to predict the cause. The conclusion is that it has a lag, which is a slower forecast than we need to know.
- Using indicators in theory may be correct, but due to the delay as mentioned above, it will be WRONG compared with actual results. If only using technical indicators according to theory can bring success, then successful people will make up the majority of the market, not the current statistics with the percentage of successful people only 5%, the remaining 95% are losers. In other words, if it is successful in theory, there are no losers anymore, and where does the winners' money come from? when this game sums to zero? (winners take money from losers).
If you have the same opinion as me, now let's start with the main thing, the creative process of using our own indicators will include the following 8 steps:
STEP 1: REMOVE ANY KNOWLEDGE
First and foremost, you need to erase any prior knowledge about using technical indicators. For a bit of fun, if you want to create a new type of martial arts, you need to destroy all the old martial arts you already have. You simply need to temporarily forget all the uses that you already know (mostly theoretical usage). And look at how to use the indicator like someone who knows nothing about it.
STEP 2: CHOOSE 1 TECHNICAL INDICATOR THAT YOU LIKE THE MOST
From a personal point of view, I believe that every path we take (using any system) will eventually converge to a destination, that's the truth. Therefore, which technical indicator you choose is not as important as how you will use it. In this step, you simply need to choose your favorite indicator, be it ichimoku, or macd, or simply Moving Average... all good, but remember to choose only just 1 okay.
Example: You choose a 26-session SMA
STEP 3: CHOOSE 1 RIGHT TIME FRAME
Next, you need to choose a suitable time frame, the time frame should include 3 timeframes that are close to each other and have the same time interval. The choice of timeframe depends on your trading style and goals, for example, if you are intraday trading (target around 30-50 pips), you can choose the M15 - H1 - H4 timeframe or M5 - M15 - H1. Assuming you have selected H4 and H1, you should choose M15, not M30, because M30 is too close to H1, while H1 is 4 times away from H4 and H1 is only 2 times away from M30 time.
In this set of time frames you need to identify 1 main timeframe (usually in the middle) - 1 larger timeframe to look at the broader context - and 1 smaller timeframe to look at and find points into the command. For example, with the M5 - M15 - H1 frame, the main frame is M15, and H1 to consider avoiding price areas that fall into the opposite position (against your trade direction), and M5 to find the optimal entry point.
For example: You choose the time frame M5 - M15 - H1
STEP 4: STATISTICS AND CAREFULLY WRITE
Next, you need to make statistics with a very large number of samples, the larger the more accurate. The essence of this game, in the end, is still a problem of probability. When you enter a BUY order, you are betting on the probability that the price will increase more than the probability that the price will decrease, and the basis for that probability is the results of the analysis in your system. When you master this, you also always create for yourself a mentality that the probability of losing an order is always there and if it happens, you are more easily accepted.
More specifically, the important thing of step 4 is that you need statistics for the main timeframe, the job is very simple, open the price chart at the main timeframe of any currency pair (eg EUR/USD). ), then re-check the past price, and mark the price reversal points, i.e. mark the points where the price made a top and a bottom. The ultimate goal of a trader is to trade at these price zones, so you only need to be interested in the two price zones at the top and bottom. After ticking these areas, you need to make a note of the CHARACTERISTICS OF INDICATORS IN THE TOPS AND LOWs. At this step, if you are careful, you will spend a lot of time and effort, but rest assured that you will be rewarded, after receiving positive trading results. And the thing to note in this step, is that you need to combine the statistics with 2 important factors, TREND AND VOLUME.
For example: At M15, in the price areas forming a peak, the SMA 26 has the following characteristics:
- With an uptrend, the price is usually above and far away from the SMA, then the SMA slopes up, the volume increases sharply,...
- With an uptrend, there are times when the price is only a little higher than the SMA, but the SMA then goes sideways, the volume increases,...
- With a sideways trend, the price is usually above and quite far from the SMA, the SMA then goes sideways,...
- With the downward trend...
....
At this step 4, you are doing a simple STATISTIC job, don't impose any knowledge you already know about technical indicators, but be objective and look at it like a newbie who doesn't know anything about it, and NO NEED TO UNDERSTAND THE STRUCTURE OF TECHNICAL INDICATORS. Simply statistics and statistics only, the more detailed the statistics, the more the results and characteristics of the statistics are broken down, the better.
STEP 5: CHOOSE 1 STRATEGY WITH THE BIGGEST PROBABILITY
After enough statistics, you will get a set of different strategies, some of which you see a high repeat rate and accuracy rate, there are strategies you find it has a correct rate. lower accuracy... And now you choose a strategy with the highest probability of correctness, which is the most repeatable and accurate. Starting here, you will only develop, deepen and research applying THIS STRATEGY.
For example: When the trend starts to reverse from up to down, the price falls to break the old bottom (confirms the reversal) through the SMA 26 and corrects up to cut through the SMA 26, the price is higher than the SMA 1. period while the SMA is still sloping down, accompanied by a decrease in trading volume, there will usually be a sharp drop.
STEP 6: FILTERING MULTI-TIME FRAME ANALYSIS
After having your own strategy, there will definitely be false orders in statistics, the task of this step is to filter and eliminate those wrong orders by looking over a larger timeframe (of both wrong orders and correct command) and continue to re-statistic to find out what is common when it is true, and what often occurs when it is false. This job is that you are filtering out the noise for your strategy, to increase the winning rate for it.
For example: With the above example of SMA 26 as above, wrong orders will often be found when at H1 there is an opposite position with M15, that is, at H1 the price has reversed from down to up and the price is correcting to return. SMA line (want to go up again, so selling at M15 would be wrong).
STEP 7: TEST - TEST - AND TEST
Now, with what you have worked hard to record and record, create a strong strategy for yourself. You just need to optimize the entry point at a smaller time frame, and combine with other factors such as:
- How to set Stop Loss and Take Profit.
- How to manage capital.
At that time, a full trading system has been set up by you. You just need to apply and test it (demo trading), test it a lot, trade a lot, and always remember that after each trade you have to record the winning order with what characteristics, and the losing order can be. What are the characteristics (in both the main timeframe and the larger timeframe), including the case that after entering the order, the price will run in the wrong direction for 1 more period before running the correct prediction or not... to get points? enter more optimally on a smaller time frame.
STEP 8: FINISHING AND EXPANDING
At this point, your trading system has been completed. You have seen very positive trading results with a high win rate. And your job now is every day to scan over 28 currency pairs to find the ones with the "shape" that fit your trading strategy, for you to trade with it - THAT IS ENOUGH.
Over time, you will want to find other strategies, so just repeat the steps above, and gradually you will be able to catch every move of the price (forecast the probability of the price going up or down, for any currency pair, at all times).
Thank you for reading and sharing this article, see you in the next content.
Good luck.
Best regards,
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