Some people are successful trading on instinct, which is probably a result of many years observing markets enabling their subconscious to show the way.
Buy many more people trade as a reaction to price in relation to technical indicators and have varying degrees of success. Before you place your trust in an indicator it’s wise to do a little research of your own.
What’s Your Instinct Here?
In the above charts there are two successful trades:
1. The upper chart is a trade entered when price crossed above the upper Bollinger Band and exited when price crossed below the lower Bollinger Band.
2. The lower chart is a trade entered when price crossed above the lower Bollinger Band and exited when price crossed below the upper Bollinger Band.
Two successful trades based on indicators, but which of these ideas is successful when applied to a 10 year history of GLD?
Have a guess before reading on…
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The Answer is…
#2
In fact over that period GLD has increased in value by 33% and yet the first scenario lost money despite being a long only trading system.
The 2nd scenario – buying on a cross above the lower BB and selling on a cross below the Upper BB showed positive overall results but still can be beaten by other variations.
Take a look at the 3rd video in the Guide To Testing Your Trade Idea series to find out all the results and how to run these scenarios yourself.