Create A Hybrid Indicator
by Jim Ritter
Interested in creating an indicator with a little bit of this from one kind of indicator and a little bit of that
from another? Well, you're in luck. This may be your solution.
Technical indicators are tools, and just like hammers, screwdrivers and pliers, everyone has about the
same basic selection to choose from. That having been said, have you ever found yourself in a situation in
which you need a unique tool that isn't in your toolbox? It's not a new situation, and it' s not limited to the
world of carpentry and construction; it can occur in technical analysis as well. But it doesn't mean you' re
stuck. You just ha ve to get a little creative.
For the sake of this discussion, let's assume that you're fond of stochastics and the relative streng th index
(RSI). Both are overbought/oversold oscillators. They are different in that RSI is based only on the close
while the stochastics oscillator use s high, low and close. However, it may be tha t neither indicator
performs exactly to your specification and satisfaction. It's quite possible that you could predicate your
trading rules on both indicators reaching ta rget values at the same time -- that is, RSI less than 20 and
stochastics less than 30. These are generally accepted signal levels, but for both to occur simultaneously
is not particularly likely.