subject: Do You Trade With One Oscillator, One Indicator? [print this page] There is a synergy that exists between different indicators you place on your trading screen. All too often, I see traders use one oscillator, maybe two oscillators, and make their trading decisions based upon the readings from these oscillators. In my opinion, this is a mistake. In general, oscillators give you a one-dimensional view of the information they are designed to analyze. In order to trade effectively, you in effect need a three-dimensional view of what is happening in the market.
For that reason, I use a variety of indicators to give myself a more rounded view of the market action. By definition, oscillators are formulaic versions, or specialized formulas, that analyze a certain market function. Most oscillators are typically lagging indicators because they analyze and store data in arriving at the product of their calculations. While historic data can be very useful, it can sometimes put you behind the actual price action occurring on your trading chart. In my trading, I use several oscillators but also added some other indicators that give me a more current view of what is occurring.
One such indicator, and I think it is absolutely necessary, is the NYSE tick. There are other indicators like the NYSE tick that are also helpful and I am not married to this particular indicator. I have simply used it for so long that I have become accustomed to its machinations and have a high level of trust in the readings it generates. The NYSE tick is not generated through information gleaned from futures markets. The information on the NYSE tick comes directly from the New York Stock Exchange. Since I trade only financial futures indexes this particular indicator is of extreme interest in my trading. The information from the NYSE tick is not filtered through oscillator formulas or past historical data; it is live information from the New York Stock Exchange as it occurs. With the NYSE tick I get an up-to-date view of exactly of the current state of the New York Stock Exchange. What could be more helpful?
There is a general feeling among professional traders that oscillator traders are generally a step behind what is actually occurring in the market. I think this may be partially true, though professional traders generally exhibit an arrogance toward amateur traders that is less than flattering. There may be good reason for this, because many amateur traders have not taken the time to properly learn to trade and are constantly chasing the market in an effort to garner profits. But there are many very competent amateur traders in the market, and my opinion is that they are as good as or better than many of the professional traders. Of course, you will get strong disagreement from the professional traders on this particular topic. Whether the professional traders agree or not, the fact remains there are many very competent amateur traders. Having been a professional trader, I can tell you there are many incompetent professional traders. So I guess the balance, as a whole, evens out.
My point is a simple one, and I want to point out that using a group of indicators, or oscillators, should entail a broad view of the market. By that, I encourage traders to use indicators that illuminate different kinds of information that are occurring during the trading session. The list of different factors seems almost endless; you might look at volume, winners versus losers, momentum, market velocity... there are many different market segments to analyze and apply to your trading. Of course, the secret is to find a group of oscillators and/ indicators that give you the very best view of the market in order for you to make educated and accurate buy/sell decisions. I encourage you to experiment using a variety of oscillators/indicators and test your results to determine which group will provide you with the most accurate information to trade.
Not all people use the same oscillators/indicators. There is a reason for this, and it's because each of us and interpret information in a different manner. Certain oscillators/indicators resonate with each trader in a different manner, and each trader must determine which combination of indicators gives him or her the best possible view of the market in order to make accurate buy/sell decisions. This process is not a fast one, and it may take months or years before you hit upon the right combination of indicators that allows you to trade effortlessly. More importantly, you must trust the information you are receiving in order to make confident buy sell decisions. Again, I encourage you to experiment with different oscillators/indicators to determine which combination works best for you.
by: David S Adams
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