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Robert has been involved in the financial markets for the past 37 years as both a trader and technical analyst. He is considered an authority on technical indicators and 3 trading indicators to combine with the klinger oscillator is widely known as the author of The Encyclopedia of Technical IndicatorsSecond Edition.
In this interview, Robert will share a little about his background and his statistic research on the effectives of indicators that are common use today. Thanks for joining us, Robert. First, how did you get into technical analysis and trading? My uncle made a fortune in the early s with his stock in Burroughs Adding Machine Company, which was just getting into computers.
From his good fortune I learned that stocks could be good. So, when I entered Ohio State University inI signed up for every course that in any way related to the stock market. Did you learn anything there that you would apply in your career? Although he spoke these words with a somewhat skeptical tone still favored by finance professors when they refer to technical analysis todayhe offered it as a possible topic for the required term paper.
I jumped at the chance. How did you go about it? I spent about 2 months intensely studying Joseph E. All calculations had to be done by hand in those days. Did you actually attempt to apply the indicators to calling the daily market action? It did not take long for me to start to get a feel for the day-to-day movements of the Dow Jones Industrial Average. What kind of indicators were used 36 years ago?
The day and day moving averages already were known and respected. Moving averages of different lengths indicate trends in multiple time frames, which is an important concept to understand for both investors and traders. Are there others that have fallen out of favor?
Before personal computers, back testing must have been cumbersome. Back then, indicator research involved much hard and tedious work for very little return. Pencil and paper and punching keys on mechanical calculators were error prone, and it was hard to find your mistakes.
In the s, the PC revolutionized indicator testing and systems development. What work did you find immediately after studying finance in college? I could have made more in another industry, but 3 trading indicators to combine with the klinger oscillator was focusing on my long-term career path.
I crunched numbers in the back room for about a year before they allowed me to analyze Ks, interview corporate management, and write original fundamental research reports.
How long were you a fundamental analyst? My career went very well for a few years, especially in the bullish stock market trend of intoas the stocks I recommended went up nicely. But was THE defining moment. I had been assigned by my brokerage firm to fundamentally cover a mortgage REIT based in Houston, Texas, which was a building boomtown in Today, some might call it a bubble.
This REIT had done very well, but as interest rates ran up steeply in the first half ofI questioned the CFO about the spreads between his borrowing costs and loan returns. When the term structures of assets and liabilities are mismatched, that means risk The CFO assured me that his company was very safely structured and hedged.
Unfortunately, his strategy turned out to be inadequate for the steep rise in interest rates that was to come. Every time the stock broke down below a chart support level, I phoned him. Did that shake your confidence in talking to management and pouring over their reported numbers? Neither do reported numbers, which are always late and often manipulated. From on, technical analysis was the ONLY unbiased truth for me. All my experience told me that it worked, while I could clearly see that fundamental analysis could run off the tracks in a major way.
Most investors feel that there is common sense logic to fundamentals. They think they understand buy low and sell high. In reality, most wind up buying high and selling low. And when they try to buy on the cheap, they find that the cheap get cheaper, because cheap stocks are down for good reasons. The valuation is not your friend. Rather, the trend is your friend. So inyou made a radical and complete transition from fundamentalist to technician. How did you arrive at the level where you felt confident 3 trading indicators to combine with the klinger oscillator write such an authoritative book on technical analysis?
That is how I met Tom Meyers, who was the consulting editor on the project. Tom already had written the first of its kind book about applying personal computers to technical analysis, so he knew his way around the world of publishing.
Nobody at that time had attempted such a big task. But Meyers did not work with you on the completely revised Second Edition, published in By that time, more than a decade after the first one, Tom was too busy with other work, so I had to produce the new edition by myself. It was a lot of work, and this Second Edition is much more comprehensive than the first, with pages of thorough indicator descriptions, formulas, and test results covering more than indicators.
Did you find indicators that worked well before the s continued to perform well in s and beyond? As a general rule, your odds of success will be significantly greater if you only go long stocks that are above the day moving average. That applies whether you are a swing trader or tend to hold stocks for 3 trading indicators to combine with the klinger oscillator months. I apply this myself in my own trading. I recall that Larry Connors in How Markets Really Work also found that there has been a real statistical edge to being a buyer when the market is above the day moving average.
Based on all that research you published in The Encyclopedia of Technical IndicatorsSecond Edition, what else can you 3 trading indicators to combine with the klinger oscillator us that will most help traders improve their trading performance today? I posted the most important seven rules on my website, www. You need to know that if you break these rules, you WILL pay the price, sooner or later.
These days, traders use software that contains well over a hundred indicators. It can be confusing. In my book, on pages 32 to 35, there appears a list of Comparably Measured Technical Market Indicators. According to Robert Colby, the numbers next to each indicator represent how the performance of the indicator compares with buy and hold.
The calculation to derive 3 trading indicators to combine with the klinger oscillator number 3 trading indicators to combine with the klinger oscillator rather complex. But taking the first one as an example, Robert says that the Exponential Moving Average 5 days 3 trading indicators to combine with the klinger oscillator times better than buy and hold during the test period.
Cumulative Volume Index The Polymetric Short-term Indicator Moving Average Oscillators 3. Except as permitted under the United States Copyright act ofno part of this publication may be reproduced or distributed in any form or by any means, or stored in a data base or retrieval system, without the prior written permission of the publisher.
So, you used different look back periods for parameters. What about the default settings, such as the period RSI that traders are accustomed to? I took an entirely fresh look at each indicator, with no special consideration for the most popular default settings. I back tested to find the parameters that worked best, and those parameters are the ones I published in my book. In addition, I try to help traders understand of the strengths and weaknesses of different indicators.
Anyone who bought that oversold condition lost big the very next trading day. I know traders who actually bought then based on some oscillator, and it was an extremely costly and painful experience for them. After you did all that testing, which ones did you find worked the best? The top-performing indicator strategy, going both long and short, stop and reverse, that I found was a trend-following moving average crossover: That seems too easy. Keep in mind that we are talking about my findings based on pure statistical research on historical data.
There are other important considerations for actual trading. Also, just because short-term trend-following has worked best over the past years, this does not mean that there have not been long periods of drawdown. The cause is the lack of strength in the underlying trend. Trend following works well when prices are trending, either up or down.
But choppy markets are never good for trend following. The whipsaws produce small losses that add up. For more than a year now, there has not been much of a trend for the major stock price indexes. Still, if you are nimble enough and can execute trades cheaply during the trading day, you can make a profit trading the short-term trends. Of course, that requires more effort and more finesse than the extremely simple end-of-day EMA crossover strategy we have been talking about.
Short-term oscillators, such as CCI, RSI, and Stochastics, when used with longer time frame trend filters, such as a day moving average, have continued to perform profitably over the most recent choppy years. Overbought and oversold works well most of the time in trading ranges.
Can you give me a specific example, say on the very popular RSI? All look back period lengths from 2 to 11 would have been profitable in my historical simulation. This suggests a robust indicator. But note that test results were poor when not filtered by the long-term trend day simple moving averageso the filter is critical. A long-term trend permission filter eliminates many losing trades against the major trend.