7 Phases of the market

[alexchartfilter]

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

[alexchartfilter]

my 2.5 cents,

Personally I am not the biggest fan of MA's, I prefer to use trendlines. The trendlines are used to balance my oscillators (like stochastics)

I also would define the length of trend you plan to trade. If you are going for a short term trade your indicators should be different then a longer term trade.

I also break trends up to sideways, up and down.

Alex

[alexchartfilter]

Could you mention some short term and long term indicators?
And how they differ?

niftywala

[alexchartfilter]

Hi, The best trending indicators are ADX and Aarons oscillators. A reading below 20 on the adx is a signal of a side ways market. A rise from below 20 signals the creation of a new trend. Combine this with full stochastics to catch every turn in the market. Thanks.

rolex007

[arya]

Originally Posted by alexchartfilter

Hi, The best trending indicators are ADX and Aarons oscillators......
rolex007

What are Aaron oscillators?

arya

[Eric115]

Originally Posted by arya

What are Aaron oscillators?

arya

Hi Arya

Did you mean Aroon Oscillator ?

Aroon Oscillator definition is:

A trend-following indicator that uses aspects of the Aroon indicator ("Aroon up" and "Aroon down") to gauge the strength of a current trend and the likelihood that it will continue. The Aroon oscillator is calculated by subtracting Aroon down from Aroon up. Readings above zero indicate that an uptrend is present, while readings below zero indicate that a downtrend is present.

[arya]

Aroon indicator. Thanks, I need to look into that one more and see how well it predicts the trends. If you've used it please tell how well it's worked for you.

[alexchartfilter]

Originally Posted by arya

Aroon indicator. Thanks, I need to look into that one more and see how well it predicts the trends. If you've used it please tell how well it's worked for you.

I have not traded with the Aroon but here is the basic premise & some history behind it:

In 1995 Tushar Chande, a principal of Tuscarora Capital Management and author of "The New Technical Trader" (1994) and "Beyond Technical Analysis" (2001), developed the Aroon indicator to determine trend direction and strength.

The Aroon indicator essentially shows how much time passed between the highest up or lowest down close since the beginning of a period (values are in %).

It's usefulness is in it's ability to help traders determine whether a long-term trend is ending or whether the trend has stalled before continuing. (ie: strength of trend is what is being measure here)

The key values of the Aroon indicators is a follows:

Higher values show more recent highs and lows, while lower values show less recent highs and lows. The higher the value shows a stronger trend while a lower number indicates a weak trend.

Alex