As a new or experienced trader, you may be looking for a statistical advantage to gain the upper hand in trading markets. There are hundreds of indicators on the market, but in fact only a few indicators are really effective. Almost every metric fails when back testing and analyzing price data in real time. Obviously, this is something that few people are willing to talk about because there are no other options a few months ago.
Most of the indicators are not working properly because of their design. Most technical analysis today has two problems:
- Signal noise
- Signal delay or hysteresis
Signal noise is one of the biggest problems in most indicators. The reason is that they are mainly based on the closing price. The closing price changes whenever the symbol rises or falls. As a noisy example of moving averages or indicators such as RSI. If you use a 60-minute bar chart on a symbol that is actively trading, you can easily get thousands of error signals in a bar chart. This is a major problem that technical analysis needs to overcome.
Signal delay is another big problem. Most indicators need to review at least a few bar charts, but this means rebuilding old data. You recall that the farther the signal is stable, the less relevant the indicator is to the current price. One of the other problems caused by signal lag is the solution to signal noise. Most metrics only allow metrics to be calculated after closing. This removes signal noise, but the signal is subject to extreme hysteresis.
The solution to most technical analysis problems comes from a new class of technical analysis and indicators. These are called conversion theory ratios. What they do is focus on important data and is responsible for creating trends. Some examples of important data are:
- The upward trending market is usually a series of higher highs and higher lows.
- Downtrend markets usually have lower lows and lower highs.
- A high proportion of bars in the choppy market overlap.
Most trends have certain price characteristics, and the current closing price does not determine the trend. For the market, it must create new highs. For a market down, it needs a low. At the same time, most of the closing price data is generating noise.
Ultimately, the conversion theory ratio is the best indicator of day trading because they only focus on important data. Shift Ratios are not only accurate, but also very quiet. The price indication responds only to the bars that form the high, low, and superimposed percentages. All of this data is broken down into lines that are easy to read and color coded as follows.
- Green = measure trend strength.
- Red = measure the strength of the downtrend
- Yellow = The instability is measured by the percentage of strip overlap.
Orignal From: What is the single best day trading indicator? - Overview of transfer theory ratios and how they work!
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