Interesting concept, using the nearest square root for the displacement value. I am going to have to try this out. I find DMAs very useful in tracking extended moves on the chart that I am trading. I find the 5 DMA displaced by 3 very useful for this. I am finding tech indicators useful as guidelines in my discretionary approach to trading. Here a certain amount of curve fitting is allowed as long as I find that it describing well the price action I am seeing on the chart. But one must be careful here. Keep in mind I am using the indicator as a *guideline* to my pattern based charting approach which is different than how I would use it in a *system* where curve fitting would best be avoided. I utilize the correct indicator for the situation I know from experience the indicator has had value in with respect to how the market or stock is trading. And I never let the indicators override what I am seeing on the chart. Also I always have price validate what the indicators are telling me before I place a trade. I want to note that this last principle I find helps me filter out many of the losing trades before I actually take them on. Much of the time I do not use indicators except MAs, and I have even been able to trade successfully even without MAs to my surprise, even though I prefer key MAs up on the chart. Some types of markets work well with the Stochs or MACD or on occasion even the ADX and ROC. For instance, I find the ROC at times is capable of giving information beyond that which the MACD is capable of providing. At other times I find the MACD to provide more relevant information for my purposes. And the ADX is good with strong momentum type runs. Each indicator has its strengths and weaknesses in a given situation. I find the Stochs to be the most useful when used properly. But this should be no surprise since I find markets tend to congest more than they trend. On an intraday bases I find this is true even when on a daily chart the market can be strongly trending. An example of this where most of the progress for the day is done on the gap up and the market spends most of the day in a congestion trading range.
I want to make a comment here on indicators that are used to determine the best trading approach or system for a given type of market. When indicators are used to determine the difference between a trending and congested market, this approach is prone to problems if not carefully used. However, this approach seems to work the best when used to filter for a strongly trending market or stock. For markets or stocks in strong trends tend seem to trade in similar ways compared to the many different ways of congested markets. Different congested markets I have found to require changes to the way I trade them. And some are substantially different in their price action in how a move unfolds, some markets being more prone to whipsaws than others for instance. And there are many different types of whipsawing price action to consider, some can be traded while others like "chop" are best left alone. So I think using indicators to simply determine how the market is trading, trending or congestion, can do more to mislead than to help the trader. IMO indicators can never replace an eyeball examination of the chart, and as far as systems go particularly those that are used for filtering for the type of market or stock a system works with best. However, I do think the best results is to be had with using indicators to identify strongly trending markets. And of course what is congested in one time frame can be trending (even strongly) in another.
JMO. Comments welcome.
Bob Graham, a student of the market. |
