Fine Tuning Oscillators by Ed Downs
The conventional wisdom in technical trading systems implies that for a trading system to be reliable, it should work across all markets and all time frames. Here are some potential reasons why it's difficult to find a single trading system that works all the time for all markets, and how optimized oscillators can be used to overcome these problems and build a sound trading plan.
It is a given that each stock has its own unique collection of primary participants (buyers/sellers), its
own appeal (industry) and its own market strength (shares outstanding). It is also a given that over time
the personality of each issue gradually changes; the "go-go" stock of a decade ago becomes the staid
holding of a pension fund today. This is why a single indicator cannot always be used over the long haul
and why research shows that persistent cycles do not tend to be present in stock market data.
Figures 1 and 2 are charts of the stocks CSX Corp. and Cray Research (CYR). The charts cover the same
time period and the price and volume levels for each stock happen to be about the same. But look how
different their price action is. One tends to trend steadily, while the other is more volatile, exhibiting
more cyclic price swings. It would be very difficult for any single trading system to profitably trade both
of these stocks, at least during this time period.
A stock's personality exhibits itself by virtue of its volatility, periodicity, trendiness and volume
accumulation/distribution patterns. If we can find a way to measure a stock's personality by virtue of
these attributes over past data, we should be able to identify likely market turning points by projecting
those measurements into the immediate future, assuming the stock's personality doesn't change
appreciably in that time.