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David/
With regard to this particular indicator, it flips back and forth
between uptrend and downtrend. This is fine as long as there is a
steady trend; used as an exit signal it will get you out before you give
up too much. However when prices go sideways the flips will occur at
short intervals. Anyone using the indicator for entry and exit signals
would be continually buying and selling and losing more than they make.
These trades are called whipsaws. Given enough of them and you may well
suffer whiplash.
Most systems are trend-following. Prices spend only a part of their
time in trends of any duration. Therefore trend-following systems
attempt to enter as soon as possible after the trend begins and exit as
soon as possible after it ends, and to stay out of the market while
things are flat. How to achieve that is what we're all trying to find
out, since the market has endless variations.
Harvey Pearce, Victoria, B.C., Canada
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David Duggan wrote:
>
> I am a trend trader and I am interested to know what happens to these formulas
> when the underlying equity enters a trading range.
>
> Would you get whiplash?
>
> It has been my experience the more sensitive a system is to "potential breakouts"
> the more false signals are generated.
>
> I haven't programmed everything on this thread related to this subject yet but I
> have started.
>
> David Duggan
>
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