Technical Market Indicators are Just Tools

If there is one thing that my examples on Bollinger Bands showed and soon on RSI is that there is no such thing as good or bad market indicators, they are  just your tools, the effectiveness depends on how you select and use those tools in designing a trading system that is compatible with you and with the market that you are trading.  They are not trading systems on their own(which I'll discuss in my future postings).  Comparing them to trading systems is just like saying that buttons and zips are the same as pants.  They are the ingredients of the system.

When the market paradigm shifts(with detection tools which I'll go into in the future), either the parameters of the indicators in your system have to be changed or a whole new set of indicators and therefore new strategies may be needed to capture the new market structure.  You just have to be flexible enough to adapt.  I know, it is not easy to be rigid in following the system's signal and be flexible to modify the system when it started leaking at the same time!  That's probably why less than 5% are succesful traders.

Another close analogy would be to treat market indicators like the weapons that you will use in a war.  Every weapon has its strengths and weaknesses, it depends on where(which market), how(trading strategy), when(time-frame) and with whom(market participants) you fight your war, you just have to study and know them (like we need to know the indicators) and choose the ones that fit well with your own strengths and weaknesses.  It is ok to lose a few battles (individual trades) but what is important is to win the war(long-term trading result)!

There is no perfect trading system, only the ones that you are in balance with and have full confidence in applying then you stand a chance to survice the eventual worst drawdown and be successful in trading.  

This is the part where lady luck comes in.  If you are unlucky, you may start trading and immediately being hit by the worst drawdown, then you may have problem trusting the system, yourself and may even pull the plug before the turnaround comes.  If lady luck is on your side, you may have big profits that way pass your worst drawdown threshold and the rest is relatively smooth sailing already provided you don't get over confident and continue to respect the market, your best teacher in the world!   Best of luck & happy trading!