Forex Trading Using Intermarket Analysis: Discovering Hidden Market Relationships That Provide Early Clues for Price Direction by Louis B. Mendelsohn

Author:Louis B. Mendelsohn [Louis B. Mendelsohn]
Language: rus
Format: epub
Tags: AvE4EvA
ISBN: 1592802958
Publisher: Marketplace Books
Published: 2006-03-24T21:00:00+00:00

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Third, it is easy to curve-fit or over-optimize the parameters of an indicator to the past price action. When traders examine historical price data, they may adjust the parameters to find those that performed best in the past, only to discover that they do not work quite so well in actual trading.

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Finally, no matter what traders may see in promotional material, no one indicator is the elusive Holy Grail for traders, because there just is no such thing as the Holy Grail.

momenTUm or Trend-FolloWing?

Technical indicators can be broken down into two broad categories:

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Momentum oscillator types that attempt to spot market turns in the early stages and are typically based on a scale from 0 to 100. These indicators include stochastics, %R, relative strength index, rate of change, and a number of others.

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Trend-following types that attempt to detect the trend and the strength or weakness of the trend. These indicators include moving averages, moving average convergence divergence (MACD), and directional movement index including the ADX indicator, which measures the trendiness of a market. Moving average crossovers can also be

very useful in spotting market turns, as will be discussed

later. The momentum oscillators evaluate how current prices compare to previous prices and provide clues about overbought or oversold conditions that suggest a possible change in price direction. These indicators are most reliable in non-trending situations when prices are moving up and down. However, in trending situations, these indicators may give a buy or sell signal early in the move and then just remain stuck on that signal as long as the trend continues.

Look at the euro chart with the stochastics indicator as an example of this problem (Figure 4.4). A downside crossover of the two stochastics lines above a reading of 80 indicates sell, and an upside crossover

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