Rank: Advanced Member
Groups: Registered, Registered Users, Subscribers, Unverified Users
Joined: 10/28/2004(UTC)
Posts: 3,111
Location: Perth, Western Australia
Was thanked: 16 time(s) in 16 post(s)
|
In response to questions like, "What is the best indicator...?" I have had several conversations/chats/posts/emails with persons various in the last couple of weeks.
As my answer to these questions has been the same, I thought I might just post it to answer the question before it gets asked again.
All indicators used in MS (and just about every other charting/TA application) are derived from 5 simple core pieces of information, OHLCV (some might like to include OI too, but I dont)
It doesnt matter how complex the adaption of these simple numbers, the fact remains that all indicators, all formulas, all exploratons, all system test codes etc all rely on OHLCV data. Moving averages (adaptive or not) are based on this data, OBV is based on this data, RSI is based on this data, Bollinger Bands are based on this data, ATR is based on this data, etc etc etc...
What this means is that before you (or anyone else) tries to implement some fancy, all-singing, all-dancing trading system you must understand how the system is 'interacting' with these five core data elements.
Take for example, a discussion on another forum regarding Price and MA crossovers. A very smart person who realised the limitations of MS had rewritten an indicator so it worked faster in MS. The code still looked for the same thing, Price and MA crossovers, but was just presented in a slightly different way so that when combined with a number of other lines of code, MS responded faster because the number of calculations required was reduced.
Can you see any differences between:
C>Mov(C,20,S)
and:
C*20 > Cum(C)-Ref(Cum(C),-20)
I will credit MG Ferreira with this really simple code that runs heaps faster in MS and is programatically really quite useful. As I had some input to the forum in which this was posted I had received email from people querying whether it was the same or not (this annoyed me - particularly when it wasn't my code in the first place! - but I wished it was because of its simple elegance!)
BUT
It does demonstrate the importance of fully understanding what the indicators mean, how they are derived and, finally, how they can be exploited. Every indicator has its capabilities and limitations. Before people make trading decisions based on indicators, they must take some time to really understand down what road they are sending their money. If they want to just give money away blindly - give it to me.
You don't have to derive each indicator from first principles, although I have done that in many instances, but it does mean that you DO NOT blindly copy someone else's code and trade it, then complain when you lose! (Is Caveat Emptor the right Latin term? Let the buyer beware? This is also the reason I DO NOT like black box systems, and password protected indicators!)
Anyway, I hope this helps someone before they make mistakes, as I had done in the past.
wabbit :D
|
