The Holy Grail Indicator
by Trader Rich
Now that I have your attention, THERE IS NO HOLY GRAIL.
When I first started learning about technical analysis 6 months ago, I was amazing at how many indicators existed. My thought was to keep it simple and start backtesting to find out which indicator would make me a million dollars. Being relatively naive, I thought there was one that existed, I just had to find it. After doing backtesting on numerous indicators, I realized that I was wasting my time. I came to the conclusion that if I relied on an indicator to give me buy and sell signals, I wasn’t going to be doing this long.
The more seasoned traders that are reading this know what I’m talking about. I want to bring this to the attention of absolute beginners only. I am NOT saying that you should stop trying to find the holy grail or do backtesting. These are all great learning exercises that can only be beneficial to your trading.
I like to experiment with formulas and backtesting because though there isn’t any 1 standard indicator that can make you money, there are people out there that are making money with a complete trading system. They have been able to automate this trading system so that income is automatically generated for them. Brian’s post today mentions how incorporating 1 from each of the 4 category classes, "diversity and robustness are increased."
Just for fun, I wanted to see how the Stochastic indicator buy/sell crossovers on the USD/JPY would have performed over the last 7 years. I started with equity of $10,000. Click thumbnail below for a graph of the equity curve.