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March 29, 1998
I been reading this recent thread about all technical indicators lagging and
price being an indicator. And I second that.
All indicators use price (high, low, open or close) as their input. And that input
can ONLY be available if it has been discovered. So, ALL indicators lag in a
sense that they are dependent on something that they are actually trying to
predict.
There is one other problem: interpreting an indicator in real time. When you
are trading very short term (sometimes going in and out of the market in a
matter of minutes), it becomes very hard to 'trust' your indicator. One second
you see a crossover, you pick up the phone and before you can call your
broker, the indicator has pulled back. So that brings us to the time frame. In
my humble opinion, its the time frame that makes an indicator useful (or
useless).
I remember someone saying Elliot Wave, momentum and Fibo are leading
indicators. Have you ever used them in VERY short term trading? The faster
you make them (by reducing the period), the more whipsaws they'll produce.
For people who are scalping, this is of no use at all. The counter which
you are trading also plays a part. A (usually) fast moving counter like cash
D-Mark can make your indicator go nuts in short term. Indicators which give
good performance in daily or weekly charts, fail miserably in very short term
trading.
Pete asked how price can work as an indicator. Well, in my opinion
(again a humble one), if you watch price action very carefully for a long
period of time, you start to get a 'feel' of it. Then, you start to 'see' where its
going. You remember all the major and minor supports and resistances, and
you are no longer looking at the charting computer to see where its headed
after it breaks a level. You know it already.
Last year there was a period when I trader for a client, only. I was in the
office for 15 to 19 hours every day sitting in front of the screens. One day
we were watching Bonds and I was telling him where the Bonds would move
next. After a while he asked me how I am making these forecasts; I didn't
have a clue myself. I just knew.
Of course, there are limitation to this type of trading. It would NEVER work for
more than one counter as it is almost impossible to watch many counter with
such concentration. And if intermediate or long term analysis desired, some
kind of indicators have to be employed (whether fundamental of technical) to
make reasonable predictions.
As far as my knowledge (a limited one, I am sure) is concerned, I don't think
pit traders have either time or patience to sit in front of a computer and
analyze the market. So how DO they analyze? I don't think there is a formula
for using price as an indicator, its just your observation and comprehension.
Regards,
Mubashir Nabi
F.I.R.M.
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