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发表于 2009-5-23 12:03 PM
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Indicators have been around as long as technical analysis was invented. But with each passing year, the number of new indicators introduced hitting the market is astounding. Not only that, the latest technology is able to calculate complex formulas that even the most complex indicators serve well in real time. But what does one choose to test and use to create a successful robust strategy? A trader can spend an entire lifetime learning and combining all of them and still cannot come close to getting a decent result. Understanding how each indicator is formulated and verifying how they work and display in REAL TIME is the key. Many indicators look very good in historical charts, but they show ambiguous numbers when they come down to calculating with the bouncing prices live.
There are two types of indicators: timing and trend. These should be viewed in this way to catch the basic essence of the market mechanics. If one looks at all the trading masters, almost all follow the trend of the market. This is one of the highest probability methods to get the big wins. The second element and probably the most important, is the timing of the entry and exit. Combining this with the right direction of the trend will complete the strategy.
Timing indicators are normally called oscillators. They have a maximum limit and a minimum limit such as Stochastics, RSI, among others where the minimum is 0 and the maximum is usually 100.
Figure 1 Example of an oscillator.
The trend indicators have no upper or lower limits, from high positive maximum to low negative minimum, all depending on the prices and how far they go. These trend indicators are DMI, MACD to name a few.
Figure 2 Example of a trending indicator.
The idea behind a trend indicators is: always trade on the side of the trend. So the first step is to check the trend, which way the money is pushing the prices. Once that is established, look at the oscillator to time the entry. It was mentioned earlier that an indicators readings can be somewhat different when it’s not in real time and when they are. With historical charts, the readings seem to indicate a clear entry or exit signal, but in real time, it’s more ambiguous.
Combining them together the chart begins to give better gauge of what the market is likely to do next, at least a better probability of when to stay out of the market.
Figure 3 Stochastics and MACD working together.
In Figure 1, the chart shows the trend is rising (MACD moving upwards). If the trade was taken right now, it would more then likely not be prudent since the market has already moved and the trade is taken too late. Adding the oscillator will show exactly that, the Stochastics is overbought, which means the market is currently exhausted (at 80 and above) and there may not be more buying until some steam is let off (by moving back to the oversold near 0-20 reading).
So by using these two together, the market action becomes more visible. Let’s take another example.
Figure 4 DMI with Bollinger Bands.
The chart above shows a Bollinger Bands overlaid on the price chart. Bollinger Bands (volatility bands) shows the extremes of price movements, normally set to 2 standard deviations (upper line, lower line from the center moving average). One way of using them is when price moves and touchs the upper line, prices are predicted to reverse and move down and vice versa. Combining this with DMI, we will know whether there is a trend or not or which direction the trend is going. Currently the chart shows the DMI lines are converging, indicating there is no trend or that the market is going sideways. This is the beauty combining indicators: it helps to keep you out of the market when things aren't looking to hot.
Keep it simple is a rule that works well in the markets. Combining the two common indicators can be effective. Do more research and make sure to test in the real time to get an idea of how the indicators work to avoid confusion and indecision.
From the previous article, the strategy of using a timing indicator with a trending indicator to define and understand market structure was explained. Using SwingTracker, the trader can scan and automate the search process to filter out the stocks that meet the right criteria to make the trade. This is the formula for finding a long entry.
VOLUME > 100000 AND MACD15 >MACD15_5 AND STO12_K < 20 AND IQC_1=1
We’ll dissect the formula into one expression at a time:
1. VOLUME > 100000 means we’ll look only at stocks that trade with volume greater than 100000. (This can be modified to trader’s requirements).
2. MACD15 > MACD15_5 means today’s 15-day MACD is above the MACD five ago. This is set to determine the short term trend direction.
3. STO12_K < 20 is Stochastics line is below the 20% line. This is to indicate the reading is at oversold; when the run-up is followed by a consolidation, an oversold reading occurs. Basically it’s to find a pullback to make the entry.
4. CLOSE > CLOSE1 means the current day’s close is higher than the previous day’s close. This is purely price action-based of the past few bars to find the right momentum. Indicators many times don’t reflect the true nature of the price action and this substitutes it. The CLOSE higher than the previous day identifies who are stronger: the buyers or the sellers. Closing higher identified the buyers as stronger; this helps confirming the indicators. The important concept to understand is that the price must confirm the indicators and vice versa.
5. HIGH > HIGH1 means the current day’s high is higher than the high of the previous day. This is to find the momentum when it’s about to move in the right direction: up. A higher high shows a positive mood of the buyers in pushing it higher. Positive price action must be present to confirm the indicators.
Figure 1 MACD turning up, Stochastics at oversold area, price consolidating.
In the results from a scan shows CLWR in a consolidation from price action, but MACD is moving high, something that cannot be detected by simply looking at the price chart alone. The trend has steadily gone up while the Stochastics reading is below 20, this is right time to watch it carefully. Once the Stochastics line begins moving up (usually by a price moving higher and closing higher than previous day), then an entry will be taken.
Figure 2 shows a MACD about to turn up and Stochastics reversing toward overbought.
This stock seems a bit thin but it met the scan’s criteria. If taking a look at the chart, one can see the divergence taking place between price action and the MACD seen from late August to beginning of November. This is the first clue that the stock is changing roles soon. There maybe some accumulation taking place in a very discrete way. Back to the last bar to the right, the MACD is now turning up again and Stochastics is moving up along with the big price spike and closing at the high, this is a positive price action. The momentum is starting to pick up steam and the moment is right for a long entry. Be sure to set a stop loss order.
Figure 3 shows MACD moving higher with Stochastics turning upwards from oversold.
PGIC is trending down, this is clearly a downtrend. It’s recommended to follow the trend. But in this case, if the long is taken, it’s a counter-trend trade: a very risky trade and requires bigger nerves of steel and a different perspective to take it. However, it’s possible the stocks sellers are near exhaustion, with the prices decelerating. Stochastics is turning up from oversold and MACD has been moving up while prices continues down: a divergence. So the trade might have a good chance, but make sure the stop loss order is place to avoid being wrong BIG.
For short scan, here’s the formula:
VOLUME1 > 100000 AND MACD15_1 < MACD15_5 AND STO12_K > 80 AND IQC_1=1
Combining the timing and trend indicators and using price action to confirm them will increase the probability of a trade going the right way. Finding the trend and then finding the right moment to enter is the essence of a winning strategy. This scan will help identify those stocks that are ready to move.
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狗仔卡
发表于 2009-3-11 01:43 PM
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发表于 2009-3-11 01:48 PM
Thank you!