Converging Indicators

A question is sometimes asked about our teaching the masses and how that would affect the market. In particular, if the effectiveness of the indicators would be reduced if everyone uses them.

First of all, according to Google, there is no exact figure of day traders in the United States, but reports indicate that around 16% of the world’s day traders are based in North America. Considering there are 9.6 million traders globally, that would suggest there are about 1.54 million traders in the United States. As popular as DayTradeSPY is, we’re not quite at that level yet of “teaching the masses.”

In answer to the question, however, quite the opposite is true. The more people use the indicators, the better they perform. That is one reason we advocate for using only a select few, but effective, indicators. According to Schwab Think or Swim®, I find almost 400 listed indicators, plus a slew of drawings such as Fibonacci and Gann Fans. Apologies if I don’t get too excited about most of these indicators, and frankly, my only fans will be found in our Trading Room.

The key is to find only a handful of trustworthy indicators, learn how to use them constructively and master their behaviors and nuances. Many, if not most, of these available indicators are redundant, providing the same information but under a different name. They all show history, so forget trying to find any forward-looking detail you could bank on 100%. That just doesn’t exist. The market is the market, and the totality of the trading participants dictates where prices will go. No indicator could possibly give us that information.

Some traders feel the more indicators they install on their charts, the better trader they will be. Again, the converse is true. By the time all your price gauges line up for a trade, you’re usually at the end of a trend. Information overload and analysis paralysis are real. I have seen many traders fall victim to installing a slew of indicators, which suggests to me that they really do not know what to watch.

The more traders use the same indicators, the better they perform. For example, some watch the 10 Exponential Moving Average (EMA). Others watch the 20 EMA, while some will pay more attention to the 50 EMA. This is important when they converge because now, with three times the traders triggering on these lines, they have a multiplier effect as support and resistance levels. When these lines separate, they lose the effectiveness of their confluence. Knowing this can make a difference, whether you take profits before the price hits the convergence or wait patiently for the price to push through.

Chart patterns are also important to watch. Just as with indicators, the more traders use these, the more powerful they become. One caveat about patterns, however, is to not force them. They must jump out at you; do not try to find one when there lacks clarity.

Retail traders are driving the markets these days, and the more we band together, the greater opportunities we will create. If we all use the same handful of indicators in assessing our trades, the easier it becomes. Technical trading becomes more important when fundamentals just don’t seem to make much sense, as we are currently witnessing.

Tariffs and trade deals can come and go. Our economy may flourish or fade, but we continue to make money on a daily basis day trading SPY options. The reason is simple: we strive to earn multiple modest daily gains on small, incremental movements on the S&P 500, SPY.

Join us at 8 p.m. ET, Sunday night to learn more.

We discuss converging indicators and more in our Trading Room. Veteran of Eagle Financial Publications Jon Johnson and I host this exciting event. We do not monopolize your entire day but rather provide a live streaming period in which we review the news and events that shape the market that day. Once established, we place our trades before a live audience, fully narrated. Your questions are also answered in real time.

If you are unable to join us every morning, our exclusive DTS Signal and Pick of the Day services have us do the heavy lifting for you by providing specific options to buy. Just load your trading app on your cell; computers are optional.

Looking to get started? Join our Inner Circle, all highly successful programs to make you a better trader. Click the links for details.

Create great trades,

Hugh