Examples: A Non-Trading EA Testing Indicators
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New article A Non-Trading EA Testing Indicators has been published:
All indicators can be divided into two groups: static indicators, the displaying of which, once shown, always remains the same in history and does not change with new incoming quotes, and dynamic indicators that display their status for the current moment only and are fully redrawn when a new price comes. The efficiency of a static indicator is directly visible on the chart. But how can we check whether a dynamic indicator works ok? This is the question the article is devoted to.
The overwhelming majority of indicators used in technical analysis are static. Let's take MACD, as an example. Arrival of a new quote will at best concern only the displaying of the latest period or, to be more exact, its final stage. However, its chart remains "impregnable" in history. To check whether a static indicator works ok or not, it would be enough just to investigate its indications on historical data. If there are several indicators available and you want to choose the most optimal one for your trading - it is no problems either: Just attach all the indicators to the chart and then select one of them that produces "more correct" indications.
In case of dynamic indicators, the situation becomes more complicated and even nearly "no go". Nearly all channel indicators can be used as an example of such indicators. As a rule, these indicators draw one or more lines that display the range of price movements. These lines are built for the current moment, of course. Thus, the arrival of new prices that significantly differ from the recent ones can change the lines arrangement in the chart for an absolutely different one within several seconds. It is just impossible to estimate how correctly the indicator works for all possible price arrangements, judging just by the last point of the current price. You can see that your indicator works correctly for several hours and consider it to work ok. However, exactly when you decide to start trading, there can occur such a market situation, in which it works incorrectly (an example of Barishpolets Moving Channels wrongly built by one of indicators is given below), and you may open your trade in an adverse direction. The indicator itself will "correct" its indications in just a couple of bars. But this will be too late for you, since your position will be losing!
Author: Sergey Kravchuk