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Thanks. The conclusions may be obvious to experts in algo trading (and I heard similar things about the problems of TA for stock trading prior to doing this), b

Thanks. The conclusions may be obvious to experts in algo trading (and I heard similar things about the problems of TA for stock trading prior to doing this), but it was educational for me to go through the exercise because (1) it confirmed to me that the crypto markets behave similar to other markets, and (2) it helped me understand exactly where and how a technical indicator like MACD falls short for making trade decisions. Before trying it myself, I was somewhat skeptical when reading about how these indicators don't work well. The overlays on charts always looked like good buy/sell indicators, so I didn't really understand why they couldn't make for a good algorithm. Only after trying it myself did I gain insight as to why they don't actually work so well. I guess it's better to learn the hard way than to learn the hard-and-painful way with real money ;)

jonkiddy 9y ago
It isn't clear to me why technical indicators aren't viable.
ValentineC 9y ago
> Only after trying it myself did I gain insight as to why they don't actually work so well. Would you care to elaborate on which indicators you tried, and what happened?
- dperfect 9y ago
  From my experience with MACD specifically, it basically came down to the fact that with longer periods (or less sensitive thresholds), you lose out on most of a price swing by the time your trigger fires, and with shorter periods (or more sensitive thresholds), you end up making a lot of trades that don't move the needle (can also rack up significant fees if you aren't careful). You can find something reasonable in the middle, but by doing so, you're decreasing both risk and potential returns. There are at least two other important considerations apart from the indicator itself: how to actually execute effectively with limited funds (when your trigger fires, do you trade everything you can, only a certain percentage, or some variable amount based on technical factors? - that's an entirely separate algorithmic rabbit hole); and even if you do find a good algorithm and it performs great in backtesting historical data, it's almost always harder to achieve the same results in real market conditions (it's difficult to simulate the spread and dynamics of limited market depth).

jonkiddy 9y ago

It isn't clear to me why technical indicators aren't viable.

ValentineC 9y ago

> Only after trying it myself did I gain insight as to why they don't actually work so well. Would you care to elaborate on which indicators you tried, and what happened?

dperfect 9y ago
From my experience with MACD specifically, it basically came down to the fact that with longer periods (or less sensitive thresholds), you lose out on most of a price swing by the time your trigger fires, and with shorter periods (or more sensitive thresholds), you end up making a lot of trades that don't move the needle (can also rack up significant fees if you aren't careful). You can find something reasonable in the middle, but by doing so, you're decreasing both risk and potential returns. There are at least two other important considerations apart from the indicator itself: how to actually execute effectively with limited funds (when your trigger fires, do you trade everything you can, only a certain percentage, or some variable amount based on technical factors? - that's an entirely separate algorithmic rabbit hole); and even if you do find a good algorithm and it performs great in backtesting historical data, it's almost always harder to achieve the same results in real market conditions (it's difficult to simulate the spread and dynamics of limited market depth).