I suppose I ought to cross-post this here since it has to do with "scribbles" and the MACD of which BS is so fond:
It's really very simple.
If one is going to use an indicator as a trigger, then he must decide at the very least what bar interval he's going to use to determine whether or not that trigger has been pulled since the character of the indicator will change with each interval, that is, a divergence on a small interval will vanish if one uses a larger interval, e.g., the 5m and the weekly. If he is going to rely on divergence, he must be clear and specific on what he means by "divergence". In this case, is it the first uptick in the histogram? The first uptick in the MACD line? The first cross? Are there other factors which must be considered before deciding whether or not to act on this "divergence"? Looking at CL on the daily, for example, which is reasonable considering the desire to be in on "big moves", the divergences in the histogram and the MACD took place in December (the histogram diverged on the weekly in December as well, while the MACD did not begin to uptick until January)? If one just now started looking at them, that would explain why those divergences are being ignored. Otherwise, the reasons for their being ignored are justified, particularly since divergences can't be used as triggers if they are long past and are now irrelevant. On the other hand, if one had been following CL and had acted on those divergences, he would have been far too early.
In this case, therefore, the simpler option is to ignore the indicator altogether since it has no demonstrable value in making a trading decision. It should be clear by now that indicators lag. They have to. As to their forecasting ability, that is in question as well (see above). If one were to rely on price action, on the other hand, the earliest he would have been in would be the higher swing high after the stride was broken (since it is the higher swing high that signals the break). This may or may not have been too early depending on the trader's risk tolerance, particularly information risk. But he would definitely have been in CL on or immediately after the double bottom at 44 which occurred three weeks ago and which exists regardless of the bar interval or whatever indicator one might be looking at. 44 is 44. To enter now puts one halfway up into the 44-56 range, which is much too vulnerable a position for a PA trader.
Hindsight? No. I posted all this two months ago. Ahead of time. In advance.
Professionals trade with the dominant market group, while beginners try to forecast the future.
-- Alexander Elder
http://www.elitetrader.com/et/index.php?threads/when-indicators-dont-lag.290422/page-33#post-4107258
It's really very simple.
If one is going to use an indicator as a trigger, then he must decide at the very least what bar interval he's going to use to determine whether or not that trigger has been pulled since the character of the indicator will change with each interval, that is, a divergence on a small interval will vanish if one uses a larger interval, e.g., the 5m and the weekly. If he is going to rely on divergence, he must be clear and specific on what he means by "divergence". In this case, is it the first uptick in the histogram? The first uptick in the MACD line? The first cross? Are there other factors which must be considered before deciding whether or not to act on this "divergence"? Looking at CL on the daily, for example, which is reasonable considering the desire to be in on "big moves", the divergences in the histogram and the MACD took place in December (the histogram diverged on the weekly in December as well, while the MACD did not begin to uptick until January)? If one just now started looking at them, that would explain why those divergences are being ignored. Otherwise, the reasons for their being ignored are justified, particularly since divergences can't be used as triggers if they are long past and are now irrelevant. On the other hand, if one had been following CL and had acted on those divergences, he would have been far too early.
In this case, therefore, the simpler option is to ignore the indicator altogether since it has no demonstrable value in making a trading decision. It should be clear by now that indicators lag. They have to. As to their forecasting ability, that is in question as well (see above). If one were to rely on price action, on the other hand, the earliest he would have been in would be the higher swing high after the stride was broken (since it is the higher swing high that signals the break). This may or may not have been too early depending on the trader's risk tolerance, particularly information risk. But he would definitely have been in CL on or immediately after the double bottom at 44 which occurred three weeks ago and which exists regardless of the bar interval or whatever indicator one might be looking at. 44 is 44. To enter now puts one halfway up into the 44-56 range, which is much too vulnerable a position for a PA trader.
Hindsight? No. I posted all this two months ago. Ahead of time. In advance.
Professionals trade with the dominant market group, while beginners try to forecast the future.
-- Alexander Elder
http://www.elitetrader.com/et/index.php?threads/when-indicators-dont-lag.290422/page-33#post-4107258
