107: Indicators that adapt to changing market conditions

"I think most traders use canned indicators like a stochastic or RSI or MACD, with a fixed length without thinking much about them." - John Ehlers

They take the default length, or one that performed well in a backtest, or even one that has been recommended by someone else, and they start trading with it.

They may have a good run for a while...

And then it falls apart for no explainable reason...

The basic problem is that market conditions change, but indicators are fixed and don't adjust to changes in market activity.

So how can we make our indicators more adaptive to market conditions?

Take a listen as John Ehlers explains a technique we can use to build indicators that adapt to market conditions and also shares a simple trick to check if our indicators are in-tune with the markets or not.

 

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Trading in the financial markets involves a substantial risk of loss and is not suitable for everyone. All content produced by Better System Trader is for informational or educational purposes only and does not constitute trading or investment advice. Past performance is not necessarily indicative of future results.