People get caught up thinking that indicators are “it”. They think indicators are all they need. First and foremost you need a trading system that answers the 5 questions presented in Chapter 10 of the book Trend Following. The list below may have some indicators that are useful in the context of answering the 5 questions that make up a complete trading system, but used alone these indicators are useless.
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| Full Name | Description |
| +100/-100 Crossover | This is a classic interpretation of CCI. Crossings from above +100 to the downside constitute a short, and crossings from below -100 to the upside constitute a long. The period used for CCI and crossover levels can be optimized. |
| Commodity Channel Index Divergence | Draws CCI indicator, then the Divergence indicator pivot point is used to isolate. |
| Commodity Channel Index Fibonnaci Peaks | Plot 8, 13, and 21- Period oscillators on top of one another. Confirms the existence of peaks (or valleys) conforming to cycles in all three time frames. |
| Commodity Channel Index Peaks | Indicator that measures overbought vs. oversold levels by virtue of today’s price distance from the statistical mean price. |
| Chaikin Level Divergence | Draw the Chaikin Oscillator. The divergence pivot point method is used to identify divergence from a prior pivot point of the oscillator. |
| Chaikin Level Peaks | The Chaikin Oscillator rises when prices advance on higher volume, and goes negative on price declines on high volume. A reversal in the indicator indicates that the current trend in accumulation or distribution could be reversing. |
| Candle Pattern: Belt Hold | Pattern formed by a range which extends in the direction of the close. A Bearish Belt Hold exists when the High equals the Open and the Low is below the close. Similarly for the Bullish Belt Hold. |
| Candle Pattern: Counter Attack | Occurs when the market reverses direction violently to arrive at the same valuation as a prior period. |
| Candle Pattern: Doji Star | Occurs when the closing price equals the open. |
| Candle Pattern: Engulfing Line | Occurs when today’s range encloses or engulfs the prior day?s range, thereby indicating great market strength in the direction of today?s close. |
| Candle Pattern: Harami | Just the opposite of an engulfing line; yesterday’s body engulfs today’s, with opposite color for the two. |
| Candle Pattern: Hammer/Hanging Man | The Hammer pattern is formed by a short body at the top of a long tail. They indicate indecision in the direction of the trend. A solid hammer which occurs at the end of an uptrend is called a Hanging Man. This type of Hammer indicates the market?s propensity to sell off sharply. |
| Candle Pattern: Inverted Hammer. | Just the opposite of Hammers; a small body occurs at the bottom of a long tail. |
| Candle Pattern: Morning/Evening Star | A Morning Star is formed when a small body is located between two other bodies so that it appears below (or above) the other two. An Evening Star generates a sell signal when a small body is located above two surrounding candles. |
| Candle Pattern: Piercing Line/Dark Cloud | Occurs when today’s candle pierces the range of the prior day, in the opposite direction. The Bearish case is also called a Dark Cloud Cover. |
| +DI/-DI Crossover | Directional Movement comprises ADX, and has two components, +DI to measure movement to the upside, and -DI, for the opposite. When these two lines cross each other, the market is typically moving from one trend direction to the other. The period for DMI is optimizable. |
| Kirshenbaum Band Crossover | Measures market volatility using standard error of linear regression lines of the close. The effect is that they measure the volatility around the current trend. |
| MACD Divergence | Looks for divergence between the MACD line and price. This divergence is measured using the pivot point algorithm. |
| MACD Crossover | The MACD is constructed by plotting the difference between a 12-period exponential moving average and a 26-period moving average. A third moving average (the trigger line) generates trading signals when the MACD line crosses the trigger , in the direction of MACD. |
| Money Flow RSI Breakout | This indicator basically measures the amount of money flowing in or out of a particular stock. When Money Flow moves through zero, it is a sign that a given security is being accumulated or distributed. A separate moving average is provided to smooth the swings. The period used for MFR and the moving average period are both optimizable. |
| Money Flow RSI Divergence | Divergence, applied to Money Flow RSI. The system trades when MFR diverges from price. |
| Momentum Peaks | Momentum measures the amount a security’s price has changed over the past p periods. This system uses the peak signal method. |
| Two Moving Average Crossovers | The faster or shorter-term moving average will rise above a longer-term one, thus giving rise to a system that is in the market on the side of the faster average. |
| Price Rate of Change Crossover | Expresses the relative price movement as a percentage. |
| ROC +6/-6 Crossover | A classic +6%/-6% crossover system, which trades when the oscillator moves through +6% to the downside (short) and -6% to the upside (long). The period for ROC and the percentage level can both be optimized. |
| RSI +70/+30 Crossover | The Relative Strength oscillator (RSI), as defined by Welles Wilder, using a classic crossover interpretation. The system trades when RSI crosses through +30 to the upside (long) and +70 to the downside (short). The levels and periods for the RSI calculation can be optimized. |
| Relative Strength Index Divergence | Divergence trading signals occur when an indicator is sloping away, or diverging from the price trend. |
| Relative Strength Index Peaks | Based on the notion of comparing up days with down days, according to the theory that overbought levels follow a disproportionate number of periods in which the market advanced, whereas oversold levels generally occur after the market has declined for a significant number of periods. |
| STO +80/+20 Crossover | This is the classic Stochastics system which was included in our original systems for MetaStock. The system trades when Stochastics crosses +80 to the downside (short) and +20 to the upside (long). All parameters, including levels, %K and %D periods can be optimized. |
| Stochastic Divergence | The stochastics plot is drawn, and then divergence is measured using the indicator pivot point algorithm. |
| STO Classic %D | Moving Average Ts when the %D line crosses the %K line above given level (short) or below a given level long). Another classic interpretation of stochastics. |
| Stochastic Peaks | Stochastics measures the relative position of today?s close to the range of price action over the past p periods, and are based on the observation that price will typically extend to the end of a range before reversing. |
| TRIX Divergence | Divergence on the TRIX (Triple Exponential Moving Average) plot using the pivot point algorithm. |
| TRIX Momentum Fibonnaci Peaks | The 8-period, 13-period, 21-period TRIX momentum oscillators are used to arrive at the composite indicator. |
| TRIX Momentum Peaks | Yesterday?s value of TRIX is subtracted from today?s value to obtain a momentum curve which gives early signals. |
| Volume Accumulation Percent Breakout | Measures relative change in accumulation and distribution to detect places where the market is changing its perception about a security by taking a more active role in buying and selling it, relative to the immediate preceding time period. |
| Volume Accumulation Percent Band Crossover | A move above the threshold occurs at the same w/ time as price crosses a trading band. |
| Volume Accumulation Percent Divergence | The volume accumulation percent plot is drawn, and then divergence is measured using the indicator pivot point algorithm. |
| Volume Climax | System that attempts to identify situations in which prices reverse in the opposite direction as volume declines. |
| WIL %R -20/-80 | William?s %R oscillator, with classic crossover Crossover. The system trades (long) when William?s %R crosses -80 to the upside, and short when the oscillator crosses -20 to the downside. The values for period and crossover levels are both optimizable in this system. |
| Williams %R Divergence | Williams %R ( an inverted, nonsmoothed Stochastic oscillator) plot is drawn and then divergence is measured using the pivot point algorithm. |
| Williams %R Peaks | Turning points of the Williams %R are determined. |
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What This List Actually Demonstrates
Count the indicators in the table above. There are more than 40. Every one of them has a description, parameters, and a defined signal. Every one of them has been used by traders. Every one of them is useless without the four elements the introductory paragraph identifies as prerequisites: answers to the five questions that constitute a complete trading system.
Those five questions are: What markets to trade, what signals constitute an entry, what signals constitute an exit, how much to trade, and what to do in specific exceptional circumstances. An indicator answers at most one of these questions and usually none of them completely. The RSI crossover tells you something about when to enter or exit. It tells you nothing about which markets, how much to buy, or how to handle exceptional conditions. Without the complete framework, the indicator produces signals that cannot be executed consistently or profitably.
The indicator industry exists because indicators are sellable. A specific parameter-based signal with a defined name and an optimizable threshold sounds like a complete trading tool. It produces charts that look like they would have worked. The problem is that any indicator optimized on historical data will look like it worked on that data. The question is whether it continues to work on new data with the same parameters and in the context of a complete trading system including correct position sizing and exit rules. The answer for most isolated indicator approaches is no.
The complete list serves as the encyclopedic reference it was intended to be: a survey of the tools available for the entry signal component of a complete system. None of these indicators are the system. Any of them might be a valid component of an entry rule within a complete system that answers all five questions. The distinction matters enormously for the trader who thinks they have a system because they have found an indicator that “works.”
Frequently Asked Questions
Why are technical indicators insufficient by themselves?
Because an indicator addresses at most one component of a complete trading system. A complete system requires answers to five questions: which markets to trade, when to enter, when to exit, how much to trade, and how to handle exceptional conditions. An indicator like RSI or MACD provides entry or exit signals but says nothing about position sizing, which determines whether the system survives drawdowns and compounds correctly. Without all five components, the indicator produces signals that cannot be systematically profitable over time.
What are the five questions a complete trading system must answer?
Which markets to trade. When to enter a position. When to exit a position. How much to trade on each position based on current account equity and market volatility. How to handle exceptional market conditions. An indicator can contribute to answering the second or third question. It cannot answer the others. A trader who has only an entry signal has approximately 20% of a complete system.
Why do optimized indicators look like they work but often fail in live trading?
Because optimization on historical data finds parameter settings that produced the best results in that specific dataset, not parameter settings that reflect a genuine, durable market principle. When the future data arrives, the optimized parameters that fitted the historical patterns may not fit the new patterns. This is curve-fitting. A robust system uses parameters that work across a range of values and across diverse market conditions rather than parameters optimized to a single historical sample.
Trend Following Systems
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