The Flaws of Traditional Analysis
One of the flaws I noticed early on in trading was that people would use indicators, instead of prices, to get in and out of positions. If you think about it, it does not even sound like a particularly good idea. Because when you choose to use an indicator, you are allowing the indicators to control how much you make or how much you lose. This is not managing risk. An indicator is a derivative. Indicators are typically a derivative of price movement over a specified period of time. Usually, the user can control the inputs that are involved in the indicator’s calculation. Relying on an indicator sounds a little bit dangerous to me. Especially if your main objective is to control risk. From my very first experience in trading, I realized that one of the biggest problems with the approach of utilizing traditional technical analysis techniques for entry and exit was a lack of the ability to define risk at trade entry.