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Strategies & Market Trends : TA Science Projects & Experimental Indicators -- Ignore unavailable to you. Want to Upgrade?

To: Galirayo who wrote (102)	3/30/1998 12:52:00 AM
From: ftth	Read Replies (1) \| Respond to of 237

Hi Ray, glad you found your way down the back alleys of SI and stopped by. <<re: I try to use Market Standard Indicators. The reason I do is fairly straight forward. The Standard Indicators are used by the Majority. I just want an indicator Modification that gives me a 1 or 2 day lead time on the majority.>> Let's assume for the moment that there is this phenomenon of "indicator groopies" that can move the market in a particular stock. I in fact do believe such a thing does exist, BUT it only exists in a limited number of stocks, only over limited periods of time, and more importantly, it only provides TRANSIET demand, not the quality, unwavering demand necessary for a breakout to have followthrough. A good example of "indicator groopies" in action can be seen on many stocks with large trading volume and large institutional sponsorship. The 50 day moving average is a widely-followed indicator, and apparently is an entry/exit timing tool used by many large traders. On many high daily volume stocks (at some point or points over, say, the past year's trading), an uncharacteristically large trading range occurs as the stock moves up through (or down below) the 50 day line. Although it could never be proved or disproved, it happens too often dismiss it as a "strange, unnatural occurrence." This is probably the absolute best case (the 50-day groopies) because I'd venture to bet there is no other single indicator with such a large following (and more importantly, large numbers of large block trades). If this "best case" for the "indicator groopie" phenomenon doesn't serve as a leading indicator for excess returns 1-3 months out, it would be hard to argue that the "canned stochastic indicator groopies," or any other less-frequently-followed indicators would provide their users with excess returns through the self-fulfilling prophecy model. Day trading is a different story. Hopping aboard the groopie train for a day trip might be profitable because you're only looking for a transient. Another possible "groopie reaction" may contribute to false breakouts, where my "transient" argument can be made. It is possible that the reason for some false breakouts is the widely followed "groopie indicator" fires, the followers act, which causes short-term transient demand, then..nothing. No one else had any reason to buy. Demand peters out and the stock either drifts back down where it was prior to the apparent breakout, or drops rather abruptly (depends whether the breakout was met by selling or just lack of further buying). So my argument is that a widely followed indicator acted upon by the masses can by definition only have an immediate (transient) effect. Anyone that buys during the followthru (if there is any) is not part of the indicator "group reaction" because the indicator fires at a point. This indicator alone does not provide any followthru because any indicator-related demand after the indicator has already fired is "late to the party," and not using the indicator according to its "sacred definition." The effects of the small number of folks that stray from the indicator's sacred norms couldn't be large enough to move the stock. I guess I really only addressed a secondary part of your comment. Turning an "indicator" into a "predictor" was the main part of your comment, so we'll have to toss that one around some. Anyway, just some food for thought (or maybe a justification for why I think I need to develop indicators from scratch). Any comments welcome. dh