Our Love Hate Relationship With Indicators

The funny thing about indicators are 99% of people use them wrong. If I could go back and change history, indicators would be called filters. Due to the fact they can rarely pinpoint a great entry signal by themselves. Now pair up your favorite indicator and price action and you might be on to something!

As stated above indicators need to be used as a filter. Now you might ask yourself "what will it filter/why "? Well indicators should be used to filter out good trades and bad trades. But the biggest "filter" should be used to let us know when to trade and when to sit on the sidelines.


Too often we see members come to Gorilla Futures and the first thing they say is " I used to use a TON of indicators". The funny but not so funny thing about that is the main thing all these traders have in common is, none of them are seeing consistent results.


Drop the major indicators and add in a small "Filter" or two and we usually see things improve. The main reason is, for one you are no longer getting into trades late.


Take for example the very basic EMA/SMA cross over, depending on your time frame you could be getting into trades hours or weeks after the move started. Why would you want to do that? The answer, I hope, is you wouldn't.


Instead of solely using the EMA/SMA to enter into trades use a moving average to help filter out good and bad trades. Use the moving average to let you know what the trend is doing. It's very easy to see if a moving average is moving up, down or sideways. Pair that with price action and voila, you've got a trading system that is based off real time movement.


Meaning you are mainly using the price action to get into a trade and the moving average is simply a filter.


This is just one small example of how indicators if used as filters could do much more good than bad. All indicators aren't bad, they are simply used incorrectly. Manly people use them incorrectly due to the massive amount of false information out there and because people think indicators can solve all there trading problems. They might make it easier but they won't do it all for you!


In short, use indicators as a filter because 99% of the time if they are used by themselves they are going to indicate one thing... and that is, getting you into a trade once the move has already started.