As a new or seasoned trader you are likely looking for a statistical edge to give you the upper hand when trading the markets. There are hundreds of indicators on the market but the truth is only a couple indicators really work. Just about every indicator fails when it comes to back testing and analyzing price data in real-time. Obviously this is something few people are willing to talk about because there were no alternatives just a few months ago.
Most indicators simply do not work because of the way they are designed. There are two issues most technical analysis techniques have today:
- Signal Noise
- Signal Delays or Lag
Signal noise is one of the biggest issues with most indicators. The reason is that they are mostly based on the closing price. The closing price changes every time a symbol has an uptick or down tick. As an example of how noisy an indicator like the moving average or the RSI is. If you take a 60 minute bar on an actively traded symbol you can easily have a couple of thousand false signals in a single bar. That is a major issue that technical analysis needs to overcome.
Signal delay is the other big issue. Most indicators need looking back at least a couple of bars but that means relying in old data. The further you look back for signal stability the more out of touch the indicator is with the current price. One of the other issues that signal lag is caused by is the solution for signal noise. Most indicators allow to only calculating the indicator after a bar closes. This cleans up signal noise but then the signal has extreme lag issues.
The solution to most of the issues technical analysis issues comes from a new class of technical analysis and indicators. These are called Shift Theory Ratios. What they do is focus on the data that counts and is responsible for creating trends. Some examples of the data that counts are:
- Up trending markets typically a series of higher highs and higher lows.
- Down trending typically markets have lower lows and lower highs.
- Choppy markets have a high percentage of bars overlapping each other.
Most trends have a certain price characteristics and no where does the current closing price dictate trends. For a market to go up it must make new highs. For a market to go down it needs to make lows. Meanwhile the majority of the closing price data is producing noise.
In the end the Shift Theory Ratios are the best indicators for day trading because they only focus on the data that counts. Shift Ratios are not only accurate but they have very little noise. The price indication only reacts to bars making highs, lows and percentage of overlay. All of this data is broken down into easy to read lines that are color coded as follows.
- Green = Measures up trend strength.
- Red = Measures down trend strength
- Yellow = Measures choppiness by the percentage of bars overlapping.