Thursday, January 17, 2008

The Best Indicator is . . .

Way back in November I asked readers to submit questions for a Q & A session. The response was much more than I anticipated, and even after setting time each week to answer questions, I still have not finished answering half of them. So, rather than answer them all in one post, I am going to start posting my answers one at a time.

Jim asks:
What do you believe is the best overall technical indicator to use in trading a stock?

Market Speculator:
Wow, one indicator huh? That's a tough one, although I do like the Zen-like approach of using as few indicators as possible. As the saying goes, keep it simple stupid (kiss). I am a firm believer in simplicity, in all walks of life.

When I first started trading, I was a slave to indicators and probably have dabbled in just about every one imaginable. I have tested some extremely complex systems with mixed results. My breakthough came when I stopped focusing on indicators and zoned in on price and volume patterns, along with support and resistance levels.

These days I only look at stochastic and obv (on balance volume). To tell you the truth, I don't even need them, but they can be helpful in quickly identifying oversold and overbought stocks, along with spotting divergences.

I do pay attention to the following key moving averages: 10, 20, 50 and 200. This is in line with my strategy of watching key support levels, both in price action and moving averages.

I know I still haven't given you an answer yet, Jim. Gun to my head, I would pick OBV, since it is one of the better expressions of volume.

1 comment:

Anonymous said...

Indicators are too complex for me to use. The tape tells everything.