| Posted in PREPARING FOR THE MARKET DAY | Posted on
Most technical indicators rely upon simple price/volume inputs. When these data points shift back
and forth, they also generate chart polarity in derivative math calculations. This interrelationship
explains why the swing trader should not seek the perfect indicator. The restless crowd drives price
change, but mathematics only interprets the residue of their participation. The eyes see emerging
trends long before the numbers signal their presence. For this reason, always use technical
indicators to support the pattern, not the other way around.
Apply popular price indicators to examine chart polarity that leads or lags shifting cycles.
Oscillators look forward to locate major swing reversals. Stochastics and Wilder’s Relative Strength
Indicator (RSI) both watch the changing axis of overbought-oversold conditions to identify turning
points. Trend-following indicators look backward to examine price development. Plot MA ribbons
or use the classic MACD Histogram to measure the trend-range axis and pinpoint the current phase
of the swing-momentum cycle.
FIGURE :
All markets cycle endlessly between contraction and expansion. But congestive phases use up many more price bars
than trending moves. This suggests why making money in the markets can be so difficult. A trend may already be over
by the time most participants see a sharp rally or selloff. At the least, risk escalates dramatically as advancing price can
reverse or enter new congestion at any time. The swing trader tries to enter a low-risk position just before price bar
expansion, whenever possible, and let the breakout crowd to push it into a quick profit.
A finite pool of buyers and sellers participates in each market at any point in time. Rallies and
corrections feed on this supply until it dissipates. The stronger the rally or weaker the correction, the
more quickly a stock will reach the bottom of its fuel supply. Oscillators measure this important
gauge through overbought-oversold polarity. These forward-looking indicators tend to hover near
extremes and then swing sharply toward the opposite pole. Swing traders anticipate where this shift
will occur in both entry and exit strategies.
Markets can tap fresh crowds as prices move. New participants may quickly replace depleted
supplies. This self-feeding trend mechanism allows extreme buying and selling conditions to
continue long after measurements suggest that reversals should take place. Oscillators reflect this
when they move to one extreme and just stay there. For this reason, don’t rely on these indicators in
trending markets. They work best within constricted ranges where natural cycles allow regular
shifts in supply and demand.
Forward-looking indicators oscillate back and forth between 0 and 100 or swing through a central
axis. Popular interpretation suggests that price reaches overbought levels near the top value and
triggers selling pressure. This same reasoning dictates that oversold conditions exist near the lows
and invite longs to consider new positions. Over time, chartists have defined intermediate values
where plot crossovers signal the start of the related phase. For example, RSI commonly uses levels
of 30–70 to signal oversold-overbought states.
Trend-following indicators measure directional polarity. Moving averages fit right into the price
pane while many other plots draw separately. Some print common patterns that uncover new trends
and pinpoint trade timing. But trend-following indicators lag most chart action. In other words, they
will turn up or down after price movement and not before it. They identify directional cycles over
many different time elements. For example, half the averages may point up and the other half point
down at the same time in a typical MA ribbon.
Use these lagging measurements when oscillators stop working. Trend-following indicators offer a
better road map in directional markets and identify lower-risk entry triggers. They pinpoint a
stock’s location on the trend-range axis and reveal natural pullback levels. Apply them to
momentum strategies that capitalize on strong trending conditions. Also let them signal the start of a
new range. Then pull up some oscillators to reexamine the changing environment.
corrections feed on this supply until it dissipates. The stronger the rally or weaker the correction, the
more quickly a stock will reach the bottom of its fuel supply. Oscillators measure this important
gauge through overbought-oversold polarity. These forward-looking indicators tend to hover near
extremes and then swing sharply toward the opposite pole. Swing traders anticipate where this shift
will occur in both entry and exit strategies.
Markets can tap fresh crowds as prices move. New participants may quickly replace depleted
supplies. This self-feeding trend mechanism allows extreme buying and selling conditions to
continue long after measurements suggest that reversals should take place. Oscillators reflect this
when they move to one extreme and just stay there. For this reason, don’t rely on these indicators in
trending markets. They work best within constricted ranges where natural cycles allow regular
shifts in supply and demand.
Forward-looking indicators oscillate back and forth between 0 and 100 or swing through a central
axis. Popular interpretation suggests that price reaches overbought levels near the top value and
triggers selling pressure. This same reasoning dictates that oversold conditions exist near the lows
and invite longs to consider new positions. Over time, chartists have defined intermediate values
where plot crossovers signal the start of the related phase. For example, RSI commonly uses levels
of 30–70 to signal oversold-overbought states.
Trend-following indicators measure directional polarity. Moving averages fit right into the price
pane while many other plots draw separately. Some print common patterns that uncover new trends
and pinpoint trade timing. But trend-following indicators lag most chart action. In other words, they
will turn up or down after price movement and not before it. They identify directional cycles over
many different time elements. For example, half the averages may point up and the other half point
down at the same time in a typical MA ribbon.
Use these lagging measurements when oscillators stop working. Trend-following indicators offer a
better road map in directional markets and identify lower-risk entry triggers. They pinpoint a
stock’s location on the trend-range axis and reveal natural pullback levels. Apply them to
momentum strategies that capitalize on strong trending conditions. Also let them signal the start of a
new range. Then pull up some oscillators to reexamine the changing environment.
