In episode 14, Matt talks about developing his own indicator. Find out how an experienced broker / trader approaches the task of creating a custom indicator and how the right indicator can potentially help you trade with an edge.

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There is a substantial risk of loss in futures trading. Past performance is not indicative of futures results.

Episode Transcript

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[00:00:02]

Welcome to the Optimus Futures Podcast. A place to learn from an industry insider with over 20 years of experience in commodity futures and options. Gain insight to the newest technology, platforms risk management, trading philosophy and advice about the current state of the futures and options markets. For futures trading platforms, deep discount trading commissions, overnight margins and instructional videos. Feel free to visit our website at Optimusfutures.com.

[00:00:32]

Please remember that this matter should be viewed as a solicitation to trade trading futures and options involve substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. Optimus Futures LLC is not affiliated with, nor does it endorse any trading system, methodologies, newsletter or similar service. We urge you to conduct your own due diligence. Now here’s your host founder and CEO of optimist futures Matt Zimberg.

[00:01:11]

Hey guys this is Matt from Optimus futures, another episode in the world of futures trading. Today’s going to be a really, really interesting episode at least I think you’ll find an interesting. So what I’ll call this episode is, what I’ve learned building my own indicators. Basically I’ve been in the trading world for quite some time. I won’t to admit how long, but it’s a long time and so I decided to take a few things that I think would help me you know kind of analyze the markets better and so I decided to really go after my own indicators and said OK I’m going to create my own things based on my experience and see if it you know if it works out. And so I’ve learned a few things along the way about indicators and the indicators world and how other people talk about it. Now I have kind of a little bit of a different perspective.

[00:02:04]

I can’t say that it’s totally not all the point that I’m going to tell you here are new to me, but I thought I’ll include everything. So first of all let me just explain one thing about the indicators, indicators themselves they don’t make you money. There’s no indicators that make you money. It doesn’t exist. There’s no, you know, crystal ball. So what you have to look at indicators is basically like road signs. So basically when you driving and you see road signs it helps you navigate better and tells you where to speed or not to speed. It tells you where it could be slippery. It could tell where there’s hills, but it doesn’t make you a better driver. Right. So indicators that make you a better trader, signs don’t make you a better driver, but they help you along the way navigate the road. So they do help you in the direction. That’s one thing.

[00:02:52]

So now I’m going to tell you the rest of the ten points, just in general of what I’ve learned. So I’ve learned that you cannot say that you have a proprietary indicator. I know a lot of people say I have a proprietary indicator, I’ve bought a proprietary indicators. Well it’s just a mix of numbers. That’s all it is. It’s just a mix of either some indicators working together or there is just a bunch of numbers working together or just a combination of things, but essentially its numbers it’s just to play with numbers. So it’s either derived on technical or math or statistics. I don’t feel that anybody could say it’s proprietary because you can make gazillion combinations out there. Of course you can call it proprietary but it doesn’t mean that it’s really proprietary. Now I’m not against people who trademark their custom things that they’ve done for example like Bollinger or stochastic or anything of that sort. But at the end of the day you know they just did have a trademark on it at the end of the day again its numbers. So that’s one thing.

[00:04:00]

Second thing is, programmers, they have the uncanny ability to add their input. So when I was looking for a programmer to do the job for me and to say listen I just need this indicator and I need this, this, this, and that. They basically always have this ability to add their input. They say you should do it like this and I think you should do it like that. And I always come back to them and I say do you trade? Because it’s not that I’m opposed to what they say but I just want to know that whatever they apply is basically from the real world it’s not some sort of an idea that they have because I always say if you have, give me input if you have skin in the game. This is what I want to do. You know don’t give it to me if you just think that this is how it should be. Does it work? Did it work for you? Skin in the game, right. So again programmers do have their input. You know I had to skip a bunch because I thought that they’re not going to deliver the right thing. Eventually I did find the right guy and he actually did the right thing for me. OK.

[00:05:01]

So that’s number two. Now the platform that I ended up doing it on was not the platform that I thought that well, I had an idea of a platform let’s put it this way. I had an idea of a platform at the wonder on the platform. I realized that that platform essentially you can’t do it has certain limitations or it just going to become very cumbersome and very expensive. So I ended up with something completely different. So every platform has their own codes, has their own language, what you want might not end up working on your specific platform be open minded okay.

[00:05:39]

And the next thing that I wanted to tell you is that you know there are I read a lot in the trading world there’s a lot of people who say that they are invested in their indicators and you know even though I build my own that’s based on my own observations that I thought would help me. I cannot say that I am invested in my indicators like honestly this is like a sentence that is completely foreign to me. It’s like saying regardless of what you know those indicators show I’m committed to them because this is all I know so I’m invested in them. I built my own indicators. I’m not invested in them. If they work they work, if they don’t work they don’t work, they can fail and you have to move on and you can work a bunch of indicators that work for two years and they were great and then the next two years they didn’t do anything. So you have to move on Investing in your indicators, you know you can’t make indicators better by observing them better. They are what they are. Okay so that’s what the point is about you know investing in my indicators.

[00:06:37]

Next point is visualization. So what I thought the indicators would end up looking they didn’t end up looking the way I imagined them in my head. Now I’m not a visual person, but eventually what I had to do is relearn the indicator what I mean by that. I had to look at it and I had to say okay this is what I wanted, this is how it’s going to show up. So now I started connecting between the visualization of the actual indicator and what it actually indicates. So it’s kind of, I call it “relearning your own indicators”.

[00:07:14]

The next point, that’s point number six. I had to learn where these indicators could miss the mark. So basically I didn’t want to develop some sort of a rigid method to look at those indicators, but rather be flexible and use a lot of discretion and indicators can go wrong. You have to know where they failed you. If you don’t know what’s the weakness of a particular indicator that you’re trading and you just followed blindly you’ll never achieve trading success. At least that’s in my opinion. Okay that’s at least what I think and again you’re entitled to your own opinion.

[00:07:48]

Well, point seven is I have some positive news. So what was eventually on my charts was a framework right. And so it has a reference system and you probably spoke to me on the phone. If you listen to a podcast you know that I would say don’t do things randomly. Right. So now you starting to see prices. You’re starting to see the indicators you starting to see how it all works together. Because I’ve developed a number of them so there’s not a lot of them and developed a number of them, but essentially you know now I can see a framework on my monitor that I can say okay prices does this. This is what it does in the price to do this, this is what it does and it’s really the biggest fight of a trader is to fight his intuitive feeling because we always go to hope. All of us. It’s just human, it’s our DNA. We always rely on hope. We hope that prices will come back, if we short we hope the prices will go down. So now you have a framework. OK. Further it allows you to develop a strategy. Now you have a trigger, right in the indicator you have a follow through and you have a way to execute. So now you know when things are brewing hopefully they’re brewing right. And then you have to follow through. It does indicate and then you have to think about the execution. So again it goes hand in hand with the framework you have those three things that should lead to a trade.

[00:09:14]

The next point is that it provides visualization for ideas. So now it goes back to the framework you can see visually how things work and how prices behave. So you don’t think just in terms of PNL, profit and loss. You see that the minute you’re in the trade how much it can go against you and I mean just graphicly. I mean if you’re using a specific monitor you know how much it can go against you or in your favor just looking at the charts along with the indicators that you created which is really important. And I really believe in it, especially if you’re a visual person. I’m not that visual but this is why I needed an indicator to go with it to see how much it has moved how it has been affected and so forth. The idea of visualization is like this if you get into the market you have an idea. Right so you go long or you go short. Now your risk management should be there when the reason that led you to get into the trade is not there anymore. So you can use a number of methods you can use for example a Stop-Loss and I have to tell you in stop losses you’re not guaranteed to exit where you put the stop. This could be slippage. Market conditions may change, however it’s one sort of risk management another set of risk management could be visualization to see, OK now the market is completely flipped on me and I need to get out. So again visualization is important. Right.

[00:10:44]

And the last thing that I would tell you is that I feel that by developing these tools, well I’m not the one to develop them but I had the idea of developing them right. What I did for myself is I brought forward ideas that are based on many years of experience. So I created I know that there’s a lot of platforms out there and I’m not saying that you know what I develop for myself is better than anything else out there it’s just for me its individual. So it works for me.

[00:11:13]

You know looking at those things and I’m not delusional about it right. I’m not thinking that those indicators that are below a sudden tomorrow are going to make anybody rich. It’s still a lot of hard work. It’s still a lot of discipline and risk management size and all those things right. So indicators are maybe 20 percent of the help that you’ll get overall in trading. Maybe a little bit more a little bit less. The rest is risk management discipline and all the other things that I mentioned. But again my final point that I was able to bring my strength forward with the things I developed so I encourage you to. You know develop something that if you feel it could help you know go for it. I encourage you to do it you don’t always have to rely specifically on things that are provided in the industry or that our vendors are selling online. You could do it just for yourself. Just like I did.

[00:12:04]

In any case, that’s the end of the podcast guys. Thank you very much I look forward to hearing from you. I’m Matt at Optimus Futures. You can call us, if you’re North America 1-800-771-6748. Locally if you’re calling from overseas 561-367-8686. Go to our site optimusfutures.com if you have if you want to participate in our forum its community.optimusfutures.com. Until next time I’d love to earn your business. Thank you.

[00:12:32]

Thank you for listening to the optimist futures podcast. Subscribe to our podcast on iTunes Sound Cloud and Google Play. You can also find us on YouTube Facebook Twitter and Google Plus all under the username Optimus features if you have any questions feel free to send us an email to support our Optimus futures dot com or give us a call directly at 561-367-86864. Toll free at 1-800-771-6748. Once again thank you for listening to the Optimus Futures Podcast.

Please remember that this matter should be viewed as a solicitation to trade trading futures and options involve substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. Optimus Futures LLC is not affiliated with nor does it endorse any trading system methodologies newsletter or similar service. We urge you to conduct your own due diligence.

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