Futile indicators are only cluttering charts. TA traders don’t want to hear it, but their subconscious tells them all the time that something is wrong. Why are you changing your indicators constantly? Right, because they are nonsense. Even the best trading indicator has a severe problem. It implies that the market can be projected into a formula that is neither complex, nor simple.
The simpler the chart pattern the better. That is why the trend is the best chart pattern. The perfect trend doesn’t have any swings, ripples, pullbacks. It is simply smooth. The more swingy a trend is, the less it is a trend. Oscillator based systems and pressure charts that try to gauge selling and buying pressure are based on a trading system construction mistake.
If you bet on increasing selling pressure after a phase of buying pressure, you really bet on something very different, namely a smooth turn followed by a nice downswing. Your pressure chart doesn’t show you the smoothness, instead it smoothes out the chart itself so that it has something to show. Not really helpful.
The sad truth about the markets is that they are more difficult to trade. Regularities manifest spontaneously and vanish abruptly. One formula that fits it all doesn’t exist, unless it is one that describes the very simple chart patterns like trends.
There are two methods to technically trade off the chart. Either do it as simple as you can and that is to bet on the trend, or have an adaptable system that is able to snuggle to price history like a rubber band. The latter is easier said than done. Curve overfitting is the dreaded word here. But placing yourself right in the middle with a simplistic indicator means trying to dictate what the market has to do next.
The perspective of signal theory offers an interesting view. Essentially relying on pressure charts or other signal indicators means hoping that a market produces specific frequencies more often and others less often than random would do. Strangely markets do that all the time -that is the nature of random- but they also change all the time what frequencies are over- and underrepresented.
Pressure indicators are doomed to fail. If they measure micropressure they fall prey to all these high speed trading algos that actively pretend pressure where none is. Seen longer term, it is not the pressure for swing traders that has to be gauged, but the cleanliness of a swing.
As usual for Penny Stock Alerts here is our recommendation for a way out of this randomized regularity phenomenon:
The tech trader needs either nothing and searches just for the right bigger picture, the meaningful trend, perhaps combined with a proven daytrading method for an intelligent microentry.
Convenient traders should try this all automated neural net trading solution that is more suited for strategic investors who want to put more of their energy into finding the right trend and analyzing its background.
Perhaps both trading methods could also be integrated into one where the day trading part is more a slippage controlling system.