Which technical indicator is the best?
- Thread starter Baruch
- Start date
I use a 15, because it provides the best returns for my system. But that certainly doesn't mean that it's the best for everyone, or for every stock.
But I think it's the best place for any trader to start. It gives a clear picture of recent and historical price action, trend, and deviation from trend. IMO, if a trader can't first master what an MA is, what it does, and why, then moving on to other indicators is a waste of time.
You're asking a lot of questions which are circling the point without really getting to it.
The point is not whether indicators are "useless" or not. First, you have to decide what it is you want them to do.
If you want to know when you can "expect" the trend to run out, look at support and resistance and learn how to interpret volume, perhaps candles. If you want something that will tell you the trend is over "BEFORE" it happens, you're out of luck. The best you can hope for is a suggestion, or an "indication" (hence, indicator).
If you're trading trends, learn how to draw a trendline. When the TL is broken, the trend is likely to change. It may continue its momentum, but at a slower pace. It may drift sideways. Or it may reverse.
A break of the last reaction point, high or low, is confirmation of a trend reversal, though that reversal may itself reverse. This is where coils come from.
It sounds, though, like you don't want to wait for confirmation of reversal. You'd rather get out nearer the end of the trend. If that's the case, then you're going to have to learn something about scaling out of a position, 'cause there's no way you're going to exit at the end of the trend on the money, indicators or no indicators.
The point is not whether indicators are "useless" or not. First, you have to decide what it is you want them to do.
If you want to know when you can "expect" the trend to run out, look at support and resistance and learn how to interpret volume, perhaps candles. If you want something that will tell you the trend is over "BEFORE" it happens, you're out of luck. The best you can hope for is a suggestion, or an "indication" (hence, indicator).
If you're trading trends, learn how to draw a trendline. When the TL is broken, the trend is likely to change. It may continue its momentum, but at a slower pace. It may drift sideways. Or it may reverse.
A break of the last reaction point, high or low, is confirmation of a trend reversal, though that reversal may itself reverse. This is where coils come from.
It sounds, though, like you don't want to wait for confirmation of reversal. You'd rather get out nearer the end of the trend. If that's the case, then you're going to have to learn something about scaling out of a position, 'cause there's no way you're going to exit at the end of the trend on the money, indicators or no indicators.
If you wait long enough there will be enough opinions that will tell you one thing and the opposite so that you will get confused 
. If you begin with TA, indicators are the most visible approach, another kind is to use price associated with some knowledge called "Market's action" the most sophisticated being to use patterns - but some including many academics and traders who use indicators consider them as unscientific although my model which is a scientific one can demonstrate that they are real.
It's not important which indicators to use as many are correlated to one another. What is important is to have a coherent framework. For example you can use the most simplest ones: simple moving averages. The basic framework will be to use at least 2 or 3 of them, one for the trend by using its slope, the other for the signal. In details you will have to refine : you will have to create so-called "prune" rules that will filter some bad signals, for example not take crossing if it is against the trend as the trend is the prior of your decision framework. It is only once you have set the framework that you can optimise if you optimise before you will get into evil of "premature optimisation".
. If you begin with TA, indicators are the most visible approach, another kind is to use price associated with some knowledge called "Market's action" the most sophisticated being to use patterns - but some including many academics and traders who use indicators consider them as unscientific although my model which is a scientific one can demonstrate that they are real.It's not important which indicators to use as many are correlated to one another. What is important is to have a coherent framework. For example you can use the most simplest ones: simple moving averages. The basic framework will be to use at least 2 or 3 of them, one for the trend by using its slope, the other for the signal. In details you will have to refine : you will have to create so-called "prune" rules that will filter some bad signals, for example not take crossing if it is against the trend as the trend is the prior of your decision framework. It is only once you have set the framework that you can optimise if you optimise before you will get into evil of "premature optimisation".
the question shows u're a newb at TA. it's not what indicator, it's HOW EXACTLY you use it. Like here on ET anyone will easily tell you their favorite indicator because it's worthless knowledge but when you ask them HOW they trade it, they will NOT tell you, they prolly wouldnt tell under torture because that's where the real valueable knowledge is.
Baruch,
I used the search engine Google to find basic info about those indicators you asked about...
Momentum
http://www.incrediblecharts.com/technical/momentum.htm
MACD
http://stockcharts.com/education/IndicatorAnalysis/indic_MACD1.html
RSI
http://stockcharts.com/education/IndicatorAnalysis/indic_RSI.html
ROC
http://stockcharts.com/education/glossary/rateofChange.html
http://www.incrediblecharts.com/technical/rate_of_change_(price).htm
Hopefully there's something in the above links to help you to figure out how to calibrate them.
Yes...I agree...its easy to recognize a trend after the fact...
Some traders are comfortable with using indicators and others are comfortable in using price action only methods and others are comfortable in using both.
There's no right way or wrong way...there's a way that fits you as a trader.
I notice you said recognizing a trend is easy.
If that's the case...I would suggest you exploit what you already know as easy and profit from it via whatever tells you its a trend.
Also, it really doesn't matter if a trader knows when a trend is about to end...
what matters is your exit strategy (stop/loss management, trailing stop management and profit target management).
There's also some in-depth discussions already posted about MACD, RSI and others...
For example...I used EliteTrader.com search menu in the upper right corner about the MACD...
http://www.elitetrader.com/vb/searc...d=250975&sortby=lastpost&sortorder=descending
There's a few threads about MACD and Divergence that may help you in your use of this indicator.
NihabaAshi