Re: Oscillator and Trend Following Indicator Integration?

["Steven Buss" <sbuss@xxxxxxxxxxx>]

Thanks to Harvey and to all who have replied to my question.

The "received wisdom" does seem to be that oscillators work best in trading
range markets and that trend following indicators (by definition) work best
in trending markets.  And this makes sense.

But I wonder about one thing...

Don't oscillators also work well in trending markets when the market is in
an extreme position (as defined by an oscillator) AGAINST the trend?   i.e.,
in an up-trending market, when the stochastic is oversold, then, the
stochastic indicator does provide information of significant value?

So, the restated "received wisdom" principles might go something like this.

-   Trend following indicators work well in trending markets.
-   Trend following indicators don't work well in trading range markets.
-   Oscillators work well in trading range markets.
-   Oscillators also work well in trending markets when they have extreme
values that run AGAINST the trend.
-   Oscillators don't work well in trending markets when their value is
consistent with the trend.

Thoughts?

P.S.  The Elder insight on this is that the trend is best found by examining
a trend following indicator at a higher level timeframe than one wants to
trade.  (e.g., trend established by weekly bars for trade timing determined
by daily bars)

Thoughts?

Steven Buss
Walnut Creek, CA
sbuss@xxxxxxxxxxx

-----Original Message-----
From: Harvey Pearce <hpearce@xxxxxxx>
To: Steven Buss <sbuss@xxxxxxxxxxx>
Cc: Metastock-list <metastock-list@xxxxxxxxxxxxx>
Date: Saturday, November 22, 1997 10:25 PM
Subject: Re: Oscillator and Trend Following Indicator Integration?


>Steven/
>
>You bring up a point that I've been toying with.  I was hoping that one
>of the more experienced members would reply, but since they haven't I'll
>make my own low grade input.  I'm a beginner with a greater investment
>in books than securities, so evaluate this accordingly.
>
>The received wisdom is that oscillators work with trading ranges but not
>with trends.  If this is true then it is more a case of switching
>between oscillators and trend-following indicators than of combining
>them.
>
>There is a commercial system called Catscan.  The developer, Randy
>Stuckey, claims that it is two systems in one: one for choppy markets
>and one for trends, with a choppiness indicator to switch between them.
>
>Perhaps Stochastics, which tells us where we are now relative to where
>we've been, could be used in this way.  Once it pegs at one end you're
>in a trend.  Elder points out that it is easier to distinguish between
>trends and trading ranges when you're looking back at a completed chart
>than at the "hard right edge" as you try to get a glimpse of the future.
>
>I've tried to make an indicator of my own to show what percentage of the
>lookback period has had highs greater than the current high, but ran
>into limitations of the MS Indicator Builder.  (We need a Visual Basic
>add-on).  I'll post an accompanying message to see if anyone can help.
>
>For references I'd recommend the following.
>
>Trading for a Living, by Alexander Elder.
>Technical Analysis of the Futures Markets, by John Murphy.
>Schwager on Futures: Technical Analysis, by Jack Schwager.
>
>Harvey Pearce, Victoria, B.C., Canada
>
>=====================================
>
>Steven Buss wrote:
>>
>> My frustration the last few days led me to try to get a handle on the
>> Oscillator (e.g., Stochastic) vs. Trend Following (e.g., moving average)
>> indicator issue.
>>
>> Maybe I've seen someone lay out a general strategy for understanding how
>> these two indicator types can be used together and just don't
remember...I'm
>> sure there are multiple approaches.
>>
>> But I did come across Alexander Elder's "Double-checking beats
optimizing"
>> article in a little booklet he sells ("Trader's Guide to Day-Trading") at
>> his site for $10.  If I had read (and understood <g>) this article just a
>> few weeks ago I would have saved myself some tension as well as a few
>> dollars...His site is www.elder.com.
>>
>> Anyone know of anyone else who has specified a clear view of HOW
Oscillator
>> vs. Trend Following Indicators can be used together?
>>
>> Steven Buss
>> Walnut Creek, CA
>> sbuss@xxxxxxxxxxx
>