Does adding more indicators increase profits ?

Anyone with some experience in using algo/signals, would have certainly wondered, can adding more indicators lead to better results than single indicator? Here by term indicator I mean builtin indicators like MACD, RSI, Bollinger Bands etc or Custom indicators too.

Lets say by some logic, indicator “A” of 50% of win rate and we add another indicator “B” of 50% winrate, a compound probability should be more > 50 ?

It doesn’t work that way in financial markets, even by simple math adding two systems with  50% win rates would yield max of 50% in result. Also note that most indicators have below 50% of winrate. So basically here we are not gaining anything instead it will take a hit on your trade system.

Biggest price you pay when include many indicators, complicate your trading system which will now behaving randomly and skip signals when expected and lose synchronicity with manual analysis. Lets see why it doesn’t improve profitability.

First, all indicators are derivatives of price history so they don’t complement each others, therefore don’t expect good from such combination. Then fact remains the markets are much random and fractal in nature, in such markets a 50% win rate is not at all a win rate, rather its a random probability of zero, funny thing is from figure 50% you may think that you have got an edge of 50 out of 100.

Just think about it, if it would have performed even in single occasion, it doesn’t take expert programmers to combine 100s of indicators and trade in huge quantity.

Leave a Reply

Your email address will not be published. Required fields are marked *