What ChatGPT has to say about Retail vs Professional Indicators?

1 Apr 2023

When it comes to trading, novice traders may be tempted to rely solely on retail trading indicators such as RSI, MACD, Stochastic RSI, Bollinger Band, and ADX. However, relying on these indicators can lead to traders losing money in the long run. One of the main problems with retail indicators is that they tend to generate false signals, which can lead to traders entering and exiting trades at the wrong time. Retail indicators are based on historical price data and do not take into account other factors that can affect market movements, such as news events, economic data, or geopolitical developments.

In contrast, professional trading indicators such as market internals, volume profile, market profile, open interest, and volume delta are essential for traders who want to stay profitable in the long run. These indicators provide a deeper understanding of market conditions, which allows traders to make more informed trading decisions.

Market internals can provide insights into the underlying market sentiment and identify potential changes in trend. For example, the NYSE Tick Index measures the number of stocks on the New York Stock Exchange that are trading on an uptick minus the number of stocks that are trading on a downtick. A high tick reading can signal bullish market sentiment, while a low tick reading can signal bearish market sentiment.

Volume profile, market profile, and open interest can help traders identify support and resistance levels, potential breakout points, and market structure, which can improve the accuracy of their trading decisions. For example, volume profile analysis can reveal where the most significant buying and selling activity is happening, which can help traders identify potential turning points in the market. Market profile analysis can reveal the market's value area, which is the price range where the majority of the trading activity has occurred. This information can help traders identify potential breakout points or reversal areas.

Volume delta can help traders identify market imbalances and potential trend changes. For example, if the price is going up, but the volume delta is negative, it can indicate that selling pressure is starting to build, which could lead to a potential reversal.

Professional traders also tend to use more advanced techniques, such as order flow analysis and footprint charts, which allow them to see the actual orders being executed in the market. This provides a more accurate view of market conditions and can help traders identify potential trading opportunities. For example, order flow analysis can help traders identify potential order imbalances and see where the big players are positioning themselves in the market.

Understanding the difference between lagging and leading indicators is crucial for traders who want to stay ahead of the market. While lagging indicators may provide some insights into past market conditions, they are not sufficient for making profitable trading decisions. Traders must learn to use leading indicators, such as professional trading indicators and advanced techniques, to gain a deeper understanding of market conditions and make more informed trading decisions.

In conclusion, relying solely on retail trading indicators can lead to traders losing money in the long run. Professional trading indicators, such as market internals, volume profile, market profile, open interest, and volume delta, provide a more accurate view of market conditions, which allows traders to make more informed trading decisions. Advanced techniques, such as order flow analysis and footprint charts, can help traders identify potential trading opportunities and gain a competitive edge in the ever-changing market.