Category:Algorithmic Analysis

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Among OBV, PVI, RSI, ROC and 100 other names the inexperienced trader runs the risk to get an headache. Clarity is needed on the use of different indicators and oscillators and here, in this section, we will do it.
“When we are faced with an obstacle,
the shortest line between two points,
can be a curved line.”

(Bertold Brecht)

The algorithmic analysis is as vast as interesting. The knowledge of the main indicators and oscillators is one of the first things that the aspiring trader faces along with trend lines, support and resistance. Knowing the different use of the various indicators and oscillators, their technical characteristics and possible limitations they might have, certainly provides a plus for the absolute novice and for those who already know the topic.

In the construction of trading systems, using indicators is not essential; yet, they can be used as background filters sorting out signals and, as per William Delbert Gann, knowledge is the most valuable capital, anyway.

Remember that the indicator has a major limitation that the price has not: it is by definition a re-reading of prices or volume. In other words, if looking at the price you attain the immediate measure of the movement quality, including the candlestick chart, observing the indicator you obtain a re-reading of the underlying array data.

Always keep in mind that the simple things are the ones that work best. If you want to estimate the speed of a car, read the odometer. Giving up price observation in favor of indicators is like trying to estimate your car speed by relating gear position versus number of engine revolutions.

That is a rough estimate!

At last, beware of cognitive illusions. A stock that is oversold is a stock that is losing value fast. Taking a long position (as per some orthodox interpretation of some indicators) only makes sense as a first tentative step.

Also, regarding indicators, our best friend is always the trend.


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