Challenged by DrStock I am touching another subject today, what indicator or oscillator has a predictive power since as we know they are all lagging, they give us a buy or a sell signal after a top or a bottom has already formed not before. The questions is, there is such an indicator that can tell us in advance in what direction is the marker going to march? I am not aware of any such indicator but DrStock has promised to reveal the secret in the next few days so you better watch his website.
What I know is that you can use o positive or a negative divergence in certain indicators as a tool to anticipate the next move. Most of the time indicators are trending in the same direction as the underlying stock. However, sometimes they move in different directions, they diverge. A negative divergence occurs when the stock is moving up but the indicator is trending down. This is a sign that the stock is going to move down soon. A positive divergence happens when the stock is moving down but the indicator is trending up. This is a sign that the stock is going to move up soon.
Look as SPX since last August. I pull out two indicators, MACD histogram and Elliott's Wave histogram but you can also use RSI and probably many others, such as OBV (On Balance Volume). As with anything else these indicators are never 100% accurate (not even close), so don't expect them to give you an exact buy or sell signal but combined with other indicators (e.g. DMI) and EMAs crossing they may prove useful. Interestingly enough, combining the power of the two of them (MACD and EW histograms) the performance improves.
N = negative divergence
P = positive divergence
Happy trading!
babaro
P.S. A trading book I would recommend is Technical Analysis: The Complete Resource for Financial Market Technicians
What I know is that you can use o positive or a negative divergence in certain indicators as a tool to anticipate the next move. Most of the time indicators are trending in the same direction as the underlying stock. However, sometimes they move in different directions, they diverge. A negative divergence occurs when the stock is moving up but the indicator is trending down. This is a sign that the stock is going to move down soon. A positive divergence happens when the stock is moving down but the indicator is trending up. This is a sign that the stock is going to move up soon.
Look as SPX since last August. I pull out two indicators, MACD histogram and Elliott's Wave histogram but you can also use RSI and probably many others, such as OBV (On Balance Volume). As with anything else these indicators are never 100% accurate (not even close), so don't expect them to give you an exact buy or sell signal but combined with other indicators (e.g. DMI) and EMAs crossing they may prove useful. Interestingly enough, combining the power of the two of them (MACD and EW histograms) the performance improves.
N = negative divergence
P = positive divergence
Happy trading!
babaro
P.S. A trading book I would recommend is Technical Analysis: The Complete Resource for Financial Market Technicians
