I'm writing a series of blog posts on how new trends in technology are changing the way indicators function today. Specifically, algorithmic trading has changed the ability of lagging indicators like the MACD, Bollinger Bands, RSI etc to signal reliable movement at the right entry point. In simple terms, the indicator gives stale data or worse, the stock reverses even though the indicator says it's going up or down, because the algo computer has entered and exited faster than the human can. Given that algorithmic trading accounts for more than 90% of the volume today, paying attention to the effect on trading signals is crucial. Hence, my posts. If you have been trading actively for more than a few years, what's your experience on lagging indicators today? To answer, just copy and paste your answer in the thread. 1) Just as accurate as in years past. My results are just as reliable as they used to be. 2) Less accurate than in years past. My results are not as reliable as they used to be. 3) I'm not sure. If you aren't sure, look at an intraday MACD chart for several stocks and notice the entry signal and where the stock moved to next. Did it drop against the signal immediately after, before retracing? Did this reversal happen several times during a time period when the MACD is signalling? This is the kind of 'stale' data I'm talking about that is tough to weather. Looking forward to seeing if others notice this.
Lagging indicators .... They ain't lagging. You're the retard. Why ain't they lagging ? Because they process the last price. Does the clock is late because we want it to be 1s forward in time ? I don't understand how a SMA should be lagging ... Seriously. It does its job. It computes an average in real time !
Pass a discrete sine wave through a moving average and there is a phase lag, its basic signal processing/control theory.
They don't understand the concept of a look back period . An average of present price is present price and nothing else.
Trading by 'indicators' is a joke, in my opinion -- when I think of indicator trading...makes me think of people who attend Trading Seminars and buy those Systems. Indicators are good, to a Certain extent...but should be used as merely a tool in a more holistic approach or viewpoint.
... In theory you can shift this lag forward. It's just basic Maths. Keep your theory. Your shadow when behind's lagging ? No ... It's just where it has to be. Don't ask a fish to climb a tree. It looks like it's lagging. But it's an average. Not the sin curve. Two different things ... Anyway. I am the retard.
Thats not practical for real signals, as any attempt to compensate for phase lag will also amplify noise. In a trading context the last thing you would want to do is artifically increase uncertainty in your trading signals.