7 Phases of the market
Technical analysis is mainly based on three assumption that all the news is discounted in the movement of the market (charts), the market reflects mass psychology and the market moves in 2 directions, trending and trading(sideways).
It's important to recognize in which phase the market is, to be able to use the right tools for effective results.
Many people complain that RSI doesnt work always, MACD gives wrong signals sometimes. These different indicators exploit different properties of the market and therefore cannot always be used as the only triggers for entry and exit signals.
For example MACD is not a mean reversion system and therefore will give wrong signals in trading markets, where as it gives excellent signals for trendging and trading to trending and vice versa. Similarly oscillators will give skewed signals in higly trending markets.
So lets analyse the different phases of the market and some tools that work in different conditions.
Some traders elaborate on the movement of the market.
There are 3 kinds of market: Trending, trading(sideways) and trading to trending and trending to trading.
The trending market is divided into the bull and the bear market.
The trading market can occur before the trend or after the trend.
And trading to trending is when the market goes from trading to bull or trading to bear.
And the trending to trading is when the marklet goes from bull to trading or bear to trading.
Here are some indicators and osscilators annd their behaviours in the different markets.
Moving averages and MA based indicators give false break outs in trading markets, where as it gives excellent results in all other types of markets.
For Stochastics, in a trading market, the crossovers of OB and OS are vaslid. For bull mkts, Crossovers from OS are valid and vice versa for bears. For the other markets, one sided signals are generated.
RSI gives excellent signals in trading markets, but skewed signals to overboaught in bull markets and skewed oversold signals in ber markets. Same types of signals for trading to trending, but so so signals in trending to trading.
Oscillators give valid signals in trading markets. Some modified version can give better signals in other types of markets.
And the bar chart patterns work best in all kinds of markets.
I personally find MAs are best for trending markets, trading to trending and trending to trading.
What are your views? Lets see if we can get a bigger list of indicators and osscilators and develop a good trading plan???
NITYWALA
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