In addition to the Evolution of a Trader series, I’m going to start another series of posts, where I examine a technical indicator in detail in each post. I’ll explain how it’s computed, how traders use it, and what the values are thought to indicate. When it’s an indicator I use, I’ll give examples of how I use it. Of course that is only one perspective. If you use an indicator in a completely different fashion than I do, please say so!
I’ve wanted to put aside the time to do this series for a while, for two reasons. One, I think a lot of traders (especially Type 1 traders, but many experienced traders as well) put indicators on their charts and use them without any deep understanding of what they mean. They know that value X supposedly means “oversold,” but do they know why? Do they know if it realistically means oversold on tick charts just as well as weekly charts? Do they even know what “oversold” means? If they read this series, they will. Second, when I was putting together the framework for my backtesting software, I had to get to know some indicators well enough to write the code tha computes them. I found that this increased my understanding of them dramatically, and writing this series will give me an excuse to spend more time thinking about them in depth. So, I think we will all benefit.
I’ll be starting with Moving Averages, RSI, and MACD, as these were the first ones I learned about as a trader. [EDIT 2007-01-22: I didn't end up following this plan!] I used (and mis-used!) these exclusively for probably a year before branching out into more exotic indicators. Once I get through those basics, I want to discuss why technical indicators may be totally useless to you, and why, on the other hand, they may be indispensible to you. Sound intriguing? I’m just glad I’ve got a couple weeks to figure out what I meant by that! Just kidding…
Maybe there are indicators you are curious about, and you are now thinking to yourself, “gosh, it would be nice if Richard would do the legwork of researching and summarizing it for me.” Just ask! I’ll add it to the list.
References
Can’t wait for me to get around to writing about an indicator? Here are two sites that I think are nice references:
July 23rd, 2006 at 9:17 pm
Good place to mention that your posts - especially the Evolution series are insightful - they are worth a reread. Once you finish tackling the Moving Averages, RSI, MACD it might help to point to places others might not know about where such data on indicators are freely given. Allow me to suggest here for moving averages and here for RSI and MACD. Looking forward to more.
David
July 23rd, 2006 at 10:08 pm
Thanks for the kind words. It’s good to hear, because I’ve found out that blogging the way I want to do it takes quite a bit of work! But, I’m trying to put out content in areas that no one else is covering. Hopefully it will pay off in terms of readers.. . so far that number is growing slower than I’d like, but at least it’s growing.