New Indicators

Today I implemented several indicator ideas that have been on the backlog.

Firstly I implemented the RAVI indicator. It seems to be a good indicator of trend strength and good for finding trends. Apparently it is superior than ADX as it is not as laggy. I made a slight variation so that the application of the absolute value function is controllable through a parameter.

Next I implemented the Momentum indicator… but according to

http://www.incrediblecharts.com/indicators/momentum_indicators.php

this has three main weaknesses.

  1. It does not fluctuate between set limits, meaning that Overbought and Oversold levels have to be re-set for each stock;
  2. Movements tend to erratic; and
  3. Unusually high or low prices at the start of the indicator window

Rate of Change (ROC) is a smoothed variation of the momentum indicator but interestingly on this page it says RSI addresses all these issues but Stochastic is even better than RSI. It also discusses other types of momentum indicators.

Something also worth looking at is the Slow Stochastic (SSD).

http://www.incrediblecharts.com/indicators/slow_stochastic.php

I have been looking forward to implementing Elder rays as they sounded useful but don’t look that great after implementing. I’m looking at quite a short time frame though so maybe on larger time frames. The following website has an explanation on how to trade them.

http://www.incrediblecharts.com/indicators/elder_ray_index.php

Lastly, Detrended Price Oscillator is good to isolate short-term cycles. It eliminates cycles longer than the moving average and its real power apparently is identifying turning points in longer cycles.

http://www.incrediblecharts.com/indicators/detrended_price_oscillator.php

http://www.onlinetradingconcepts.com/TechnicalAnalysis/DetrendedPriceOscillator.html

The indicator does seem to be effective where there are clear cycles in ranging markets, like EURGBP better than the Stochastic did. On  AUDJPY however it doesn’t seem to be as clear. Cycles are of different magnitudes so it isn’t easy to identify oversold or overbought lines.

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