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Strategies & Market Trends : Stock Attack -- A Complete Analysis
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To: Chris who wrote (2937)7/27/1997 2:35:00 AM
From: Robert Graham   of 42787
 
I want to start up a discussion about indicators. In particular, I think it is important to understand what specifically each indicator is (and is not) telling you, and the significance of divergences with respect to specific indicators and situations. I also want to cover the how the indicators can relate to each other. Finally, I would like to cover what the different type of divergences are and their significance.

The reason I feel this disussion is important is that I find many on SI arming themselves with a suite of indicators that they really do not understand the meaning of or how to use other than mimicing the textbook "rules" of when an indicator is in an oversold state, or giving some "buy" signal. This is adequate knowledge if the stock was made to order for the indicator. However, indicators can be conflicting and very misleading at times unless the significance of an indicator is understood and a correct context is established which gives meaning to the indicator you are looking at. Still indicators can give conflicting signals, so it comes down to knowing how to weigh the evidence in order to reach a decision on the stock that you are trading.

I find many technicians that I have come across make their decisions by giving each indicator (irrespective of meaning) one vote. And then the method they use is to take a quick look at the indicator and determine a black-and-white status of each indicator, reduce the "vote" to a "yay" or a "neh", and then tally up the vote count for a final decision. Their vote count can amount to a dozen or more votes. This approach will IMO definitely will lead to failure. Not only can the significance of what each indicator is revealing as a part of the total picture be lost in this way, but also utilizing many indicators can "confuse" the picture to the technician and undermine the interpretive accuracy of the technician using them. Understanding the value and meaning of each type of indicator and making an intelligent choice in the indicators that you use can provide a tehcnician with more meaningful and accurate information about the stock being followed.

There are intelligent technicians on this "Stock Attack" thread (of course). So I think discussing the intelligent use of indicators in this thread can be very productive both for the beginners and experienced technicians here, for I beleive there is always room for sharpening ones skills with respect to utilizing TA. And the fine art (not science) of indicator use is very important to the technician.

Any thoughts on this?

Bob Graham
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