Magazine article Modern Trader

Tech Talk: Indicator Analysis

Magazine article Modern Trader

Tech Talk: Indicator Analysis

Article excerpt

The different ways markets react in a sideways versus trend environment can be dramatic and should affect how you enter trades and how you react to technical signals. So how can you identify conditions when you need to be more or less aggressive on your entry and risk management?

In a sideways market the most profitable technical tools to use are the Relative Strength Index (RSI) and stochastics. We will fade the trend when these indicators reach extremes. If the trade is dead wrong we get out at a predetermined risk, if the trade is marginally negative we get out by the third day. In a trending environment we will use the RSI and stochastics in a completely different way. As long as our trend indicators are strong, we will use the RSI and stochastics as a measure of retracement. When these indicators are no longer overextended, then we will enter with the trend and trail the trade with a stop.

We realize that technical traders avoid fundamentals, but knowing some fundamentals of the market help our traders to identify market conditions to apply a sideways or trend based trading approach. As for volatility, we have found that charting the fund positions help in identifying which conditions to implement a more or less aggressive trading approach.

Currently grain markets provide a good example. The world's ending stocks (the inventory left over at the end of the year that can be used in the following year) of starched grains are at the lowest levels since world data has been recorded. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.