Choosing The First Indicator

Forex Indicators

After defining the Model T identity in life, here we are, trying to pick an Indicator. And choosing the first indicator obviously depends on the System’s personality.

But why do we need indicators in the first place?

Well… for start, if you want a robot, you need a “mechanical” system. In other words, a beast that doesn’t “think”, but just “executes”. A monkey!

So, you need rules, and very well defined rules… otherwise the beast will eat you alive! 😉 And rules in this business are set by “Indicators”. That’s it!

 

Just Like The Car

The Model T is a brave “trend follower”. It loves to move, just like the car!

Now… the simplest indicator that better tells us the history of price movement is, in my opinion, the “Moving Average”.

There are different kinds of moving averages, aside from the “simple”, of course. Some “engineer” must have given a thought to it… and the horse became a camel, as usual!

 

Which Kind Of “Moving Average”?

The “simple”, or the “exponential”?

By instinct, I’d pick the “simple”… because simplicity rocks, of course! But in this particular case, let’s see what “exponential” really means, shall we?

By “exponential”, the “moving average engineers” mean: “Let’s give a little more importance to the RECENT price than the distant one.”

Why? Well… for start, because what’s happening NOW in our lives might be more significant “NOW” than what happened a while ago!

Man, oh man… high philosophy, right?

Anyway, in spite of some lack of simplicity, I personally think the “exponential” CONCEPT is just a hint better!

So, the Model T will go for EMAs, or Exponential Moving Averages.

Now… what does “exponential” mean? Who cares, people! Let the “engineers” be bothered about the little details… Let them come up with the formulas. If the market LIKES it, the market will FOLLOW it… and there you go, that’s ALL we need to know! 😉

 

How Many Prices Do We Include In This “Moving Average”?

Now, again like the car, where does it go the most? Yes, you got it… around town! Not even a short trip… just around town.

So, the first trend setter indicator we should look into, in my opinion, is the best “short trip story teller”! 😉

“What? Whaaaaat?!? – you say.

Yes, “story teller”! To have a “story” you need more than ONE event, right? Or otherwise it’s a “statement”, not a story!

“Man, you’re on drugs, aren’t you?” – you again.

Making it shorter… a “short story” shouldn’t have more than 5 events… and less than 5 events…

So, there you go! For me, the “perfect short story” has FIVE EVENTS!

 

Therefore, The First Indicator Is The 5 EMA!

And there you go! What we MEAN by that is “we want to know the story of the 5 most recent events, attributing more importance to the later than to the former!”

A lawyer was assisting the engineer a couple of minutes ago… 😉

If – by connecting the continuous sequence of 5 EMA points over time – the line goes up… the SHORT TERM is UP… otherwise, it’s DOWN. Period!

Simple as that? Simple as that!

Thanks for watching…

 

Comments

  1. I enjoyed reading this blog . . . I think!

    I’m sure you’re not on drugs but, as for me, I’m pretty sure I’ve been taking a lot of drugs recently but, really, I can’t be sure man . . . 5 events, statements, EMA’s, Short term, up, down. The bottom line is (you like that bit, (the bottom line) if I’m actually, really, for sure ingesting drugs, as I might well be, then, I need to STOP! On the other hand, If it’s all just been an illusion then, I need some HEAVY stuff maaannnn, as soon as possible!
    What a trip, and, it’s just been “Around Town”. What’s touring around £urope gonna be like!

    FAR OUT MAN!

    He! Hee!! Heee!!!

    • Ivan, you’re GREAT! I told you before, right, but you keep getting better and better. It’s probably the Irish weather!… rs…

      Great hearing from you!

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