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I have observed frequent comments about the validity of this indicator or that
indicator (most recently TD indicators) and I thought I would offer a comment.
When Dave Lucas and I first wrote our book we tested a lot of different
indicators as entry triggers and most of them were less accurate than a coin
flip. At that time I think those tests were informative because traders at
that time were using indicators as systems and many speakers were advocating
the use of their favorite indicators as stand alone systems. (Some still do.)
Traders have grown to be more sophisticated over the years and I see less and
less of this assumption that an indicator is a system. (The newbies will
always start this way and they need the guidance of the more experienced
traders on this list before they get into too much trouble.)
I think we should work on the assumption that indicators are best regarded as
problem solving tools and not systems. Indicators can be used in various ways
and they have various levels of effectiveness depending on what problem they
are being applied to. I confess that David and I were guilty of testing
indicators as systems and I think it is still relavent to show how feeble any
particular indicator is when we try to make a system out of it. I also think
that developers of indicators should try harder to show the strengths and
weaknesses of their indicators and to guide us in the proper application of a
new indicator.
In my opinion no indicator should be announced or promoted without a clear
explanation of why it was designed and what problems it will and will not
solve. I personally welcome Tom DeMark's participation on this list and hope
that he will elaborate on his indicators and show us what they can do for us
and what they will not do. The last thing we need is more indicators without
a purpose.
It is not fair to test TD indicators (or any other indicators) as systems
unless they were promoted as such. I'm glad Tom stuck around and survived his
baptism on the list. I look forward to his sharing more information about his
indicators and the problems they might be applied to as well as anything else
he might care to comment about.
Chuck LeBeau
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