Indicators, Patterns and Symetrics

By Ronald Thieme of The Key Level Advisory Indicators & Oscillators
There were only a few tradable commodity markets during the seventies. Most of these were in Chicago, and almost all of the trading volume was in the grains at the Board Of Trade or in the meats at the Mercantile Exchange.  Watching the trades appear on a colored monitor with charts and indicators was unimaginable.  Mathematical manipulation of prices could only be done by hand and then only on the daily data.  Calculating moving averages on several options of a few markets and then updating them was a monumental task and took huge staffs.  Technical analysis was considered more voodoo than actual research.  Almost everyone was a pure fundamentalist and few would never admit to being a strict technical analyst.

Several vendors introduced computer monitors with commodity quotes during the late seventies and early eighties.  The next generation provided some simple charts.  By the early nineties, we had colored monitors with charts of any time frame and several mathematical indicators on the same chart.  This allowed the analyst to research literally thousands of combinations of mathematical manipulations. The goal was to find the Holy Grail in the form of a technical indicator.  I was as guilty of this as well as most other technicians.  The nineties have seen an absolute explosion of new indicators.  The obvious reason is that the appetite for anything that might work is still insatiable.  It has been years since the last time I heard someone say, “I am a pure fundamentalist”.

Mathematical manipulations of commodity prices commonly referred to as commodity indicators or oscillators, have led us into an analytical abyss.  There are only five pieces of information released from any exchange: the open, high, low, close and volume, and nearly all of the indicators use only the high, low and close.  There are literally thousands of different forms of mathematical manipulations that all use these same three pieces of information.  Therefore, it is only logical that they all display a little different view of the exact same thing.  Now technicians are using one indicator to confirm another indicator.  It supposedly becomes more significant when one oscillator confirms or displays the same condition as another.  This way of thinking is questionable at best, since they all display the same thing.

Another major problem is that almost all indicators are displayed as oscillators.  I have never been able to convince myself that a mathematically oversold or overbought oscillator has anything to do with the levels where actual buying and selling will become either balanced or imbalanced.  These balanced or imbalanced conditions cause the markets to either consolidate or start the next move.  Every technician is trying to isolate these levels, but it is inconceivable that any mathematical manipulation of three pieces of data could possibly locate these critical levels.  Oscillators can only show relative areas and trades must be executed at specific prices.  Any successes of predictability of an oscillator must always be purely accidental.  Furthermore, the research has shown that buying an overbought oscillator will generate more profits than selling it and the opposite is also true.

The next article will be about investigating the age old patterns like flags and pennants and the rest of the common charting patterns.

The Key Level Advisory for the S&P minis provides investors with the Key Levels of support and resistance areas for the emini futures.  It also includes a list of the financial reports, daily market commentary, the Key Reactions and the Chartist Corner.  As a CTA, I have designed award winning computerized trading systems and have spent years consulting large and small traders on technical analysis; this is the foundation of The Key Level Advisory.

The Key Levels are a culmination of proprietary pattern analysis, which are derived from thousands of computerized data searches.  Computers research thousands of similar patterns and isolate the areas where the actual buying and selling will be at the greatest concentration. Trend analysis and reaction patterns are the main focus of these calculations.  This information is then incorporated into The Key Levels.