As I suggested before, technical indicators used by 99% of day traders are a path to slow destruction. Those indicators are developed to detect an unusual activity in the trading of certain security or when certain preset conditions have been satisfied.
If you set the standard or the norm low, the amount of noise you get is substantial and you get so many signals that trading based on that data is useless. On the other hand, if you set the standard high enough to eliminate the noise and get a handful of tradeable stocks, those have already reached their prime point for trading.
In other words, you either end up with a green banana if your signals are set to detect the slightest abnormality in trading or with a prune if you set the standard high enough to come up with a handful of stocks.
Having said that, my advise was directed mainly toward those who are cautiously entering or at least are considering to become a day trader. Some of the technical indicators work well for those who are swing traders.
To answer your question that some of these indicators work well if you get the signal early enough, I have to say that with the exception of very few signals that are not included in the commercial products available to public, you never get the signal early enough. The reason that you may have experienced some of the signals work in certain situation, giving you the illusion of having developed a successful trading strategy is that some of the trends LAST LONGER than usual. Consequently, you as a trader or developer of trading software end up with profit on that trade.
I can think of a few examples that make anyone a believer in a trading software package: MKTW, HAUP, KERA, MCOM ......
I believe and tell anyone who is willing to listen that there is no substitute for experience in trading. Signals and indicators are only tools that are helpful to direct you toward a section of the market or a specific security that is in play on a certain day or for a few days for that matter. However, I strongly urge new investors to avoid buying or selling simply because certain ratio has reached a certain pre-set or fixed number.
Technology today allows real time broadcasting of news and information over the internet. I invite you or any other software developer to post your buy or sell recommendations, as well as the signal or indicator that you used. However, make sure that those postings are a few seconds after the indicator has signaled (both buy and sell signal that make a round trip ticket). The problem is that all misleading advertisement are based on playing Monday morning quarterback.
As to my suggestions, I trade based on news, up/down grades, market strength, technical indicators, etc. However, I TRADE heavily and put my money on the line ONLY if I can spot a major BUYER or SELLER in certain security. Maybe you can develop an indicator that detects certain buying or selling patterns that I have learned to detect by looking at the level II screen in conjunction with various indicators and historical data. That will be the most valuable tool for any trader in that Goldman Sacks or MLCO does not stop buying just because a few day traders have bought a few thousand shares ahead of them.
The elementary tools offered by brokers and software companies that count the number of times each market maker has been the inside bid or ask are useless. In fact, if you trade against that signal and sell short when you see SLKC has been an inside bid more than anyone else, you are likely to make good profit. (see what SLKC did in MODA between 6/25 and 7/6, selling what it could not give away at $9 on 6/24 to traders and small investors at prices as high as $14).
I don't know if you can get the tape of level II activity of certain stocks for the last 30 days, so that you can play it back and study it. If that information is available, I suggest that you study the trading pattern of Morgan Stanley in GNCI between June 3 and June 30.
I have a list full of these examples if you have any way of replaying the market on your monitor.
However, remember that market makers or big players can buy or sell under INCA, ARCA, ISLD, etc. Just because you see ARCA selling, it does not mean that another day trader is selling. Also, there are a few players who prostitute themselves and join forces with various market makers to create a play; one sells to create a selling frenzy drag the prices down, where in fact the other is buying on the other side at prices they could not possibly dreamed of if they had acted single handedly. (I found SLKC to be the one with the biggest bag of tricks)
That is why I say on mechanical indicator can detect the games and tricks they pull, and you have to rely on your experience and what you see on your level II, instead of technical indicators.
good luck, |
