Which technical indicators are suitable for medium-term strategies?
If I knew a surefire way to make money in FOREX (or any market for that matter) I would not be sharing it with you.  If you find an indicator that makes sense to you and you think you can make money, use it.  For what it's worth, I think technical analysis is nonsense. If you're just now wading in to the FOREX markets because of the Brexit vote I suggest you set up a play-money account first.  The contracts and trades can be complicated, losses can be very large and you can lose big -- quickly. I suspect FOREX brokers have been laughing to the bank the last couple weeks with all the guppies jumping in to play with the sharks. Speaking from stock market point of view, superficially, TA is similarly applicable to day trading, short term, medium term and long term. You may use different indicators in FX compared to the stock market, but I would expect they are largely the same types of things - direction indicators, momentum indicators, spread indicators, divergence indicators. The key thing with TA or even when trading anything, is that when you have developed a system, that you back test it, to prove that it will work in bear, bull and stagnant markets. I have simple systems that are fine in strong bull markets but really poor in stagnant markets. Also have a trading plan. Know when you are going to exit and enter your trades, what criteria and what position size. Understand how much you are risking on each trade and actively manage your risk. I urge caution over your statement ... one weakened by parting the political union but ought to bounce back ... We (my UK based IT business) have already lost two potential clients due to Brexit. These companies are in FinServ and have no idea of what is going to happen, so I would respectfully suggest that you may have less knowledge than professionals, who deal in currency and property ... but one premise of TA is that you let the chart tell you what is happening. In any case trade well, and with a plan!
Yes, it makes sense. Like Lagerbaer says, the usefulness of technical indicators can not be answered with a simple yes or no. Some people gain something from it, others do not. Aside from this, applying technical indicators (or any other form of technical analysis - like order flow) to instruments which are composed of other instruments, such as indexes (more accurately, a derivative of it), does make sense. There are many theories why this is the case, but personally i believe it is a mixture of self fulfilling prophecy, that the instruments the index is composed of (like the stocks in the S&P500) are traded in similar ways as the index (or rather a trade-able derivative of it like ETFs and futures), and the idea that TA just represents human emotion and interaction in trading. This is a very subjective topic, so take this with a grain of salt, but in contrast to JoeTaxpayer i believe that yields are not necessary in order to use TA successfully. As long as the given instrument is liquid enough, TA can be applied and used to gain an edge. On the other hand, to answer your second question, not all stocks in an index correlate all the time, and not all of them will move in sync with the index. Fundamental Analysis can be used to help you determine what to buy, but they won't give you an entry signal for when to buy. Technical Analysis can be used to help you determine when to buy, and can give you entry signals for when to buy. There are many Technical Indicator which can be used as an entry signal, from as simple as the price crossing above a moving average line and then selling when the price crosses back below the moving average line, to as complicated as using a combination of indicators to all line up for an entry signal to be valid. You need to find the entry signals that would suit your investing or trading and incorporate them as part of your trading plan. If you want to learn more about entry signals you are better off learning more about Technical Analysis. We have custom software written in mostly C# for the long term strategies. Day trading is done on multiple platforms. Currently using ToS scripts for some futures and equities strategies to great success, and sierra charts for a few futures exclusively. I just moved into a position to work with day trading so I'm still learning more about the systems he uses I interned at a wealth management firm that used very active momentum trading, 99% technicals. Strictly ETFs (indexes, currencies, commodities, etc), no individual equities. They'd hold anywhere from 1-4 weeks, then dump it as soon as the chart starts turning over.  As soon as I get enough capital I'm adopting their same exact strategy, it's painfully easy "Strategy would be my top factor.  While this may be implied, I do think it helps to have an idea of what is causing the buy and sell signals in speculating as I'd rather follow a strategy than try to figure things out completely from scratch that doesn't quite make sense to me. There are generally a couple of different schools of analysis that may be worth passing along: Fundamental Analysis:Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and management. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis. The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis. Technical Analysis:In finance, technical analysis is a security analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the same tools of technical analysis, which, being an aspect of active management, stands in contradiction to much of modern portfolio theory. The efficacy of both technical and fundamental analysis is disputed by the efficient-market hypothesis which states that stock market prices are essentially unpredictable. There are tools like ""Stock Screeners"" that will let you filter based on various criteria to use each analysis in a mix.  There are various strategies one could use.  Wikipedia under Stock Speculator lists: ""Several different types of stock trading strategies or approaches exist including day trading, trend following, market making, scalping (trading), momentum trading, trading the news, and arbitrage.""  Thus, I'd advise research what approach are you wanting to use as the ""Make it up as we go along losing real money all the way"" wouldn't be my suggested approach. There is something to be said for there being numerous columnists and newsletter peddlers if you want other ideas but I would suggest having a strategy before putting one's toe in the water." Look into commodities futures & options. Unfortunately, they are not trivial instruments. Information is useless in this case.  IR is useful when you are trying to replicate the risk exposures of an index and beat it. I.E.If I am a tech fund, I would compare myself to the tech S&amp;P.  IR is useless in this case as it is just the ratio of excess returns over the benchmark to vol.  From a trading sense he needs a rate of wins to losses, so a sharpe like construct of R/SemiDeviation. Essentially his avg return divided by negative volatility.  Going further on that is omega which introduces a threshold as in trading you care more about the equity curve so MAXDD is probably more relevant. For a non-technical investor (meaning someone who doesn't try to do all the various technical analysis things that theoretically point to specific investments or trends), having a diverse portfolio and rebalancing it periodically will typically be the best solution. For example, I might have a long-term-growth portfolio that is 40% broad stock market fund, 40% (large) industry specific market funds, and 20% bond funds.  If the market as a whole tanks, then I might end up in a situation where my funds are invested 30% market 35% industry 35% bonds.  Okay, sell those bonds (which are presumably high) and put that into the market (which is presumably low).  Now back to 40/40/20.   Then when the market goes up we may end up at 50/40/10, say, in which case we sell some of the broad market fund and buy some bond funds, back to 40/40/20.  Ultimately ending up always selling high (whatever is currently overperforming the other two) and buying low (whatever is underperforming).   Having the industry specific fund(s) means I can balance a bit between different sectors - maybe the healthcare industry takes a beating for a while, so that goes low, and I can sell some of my tech industry fund and buy that.   None of this depends on timing anything; you can rebalance maybe twice a year, not worrying about where the market is at that exact time, and definitely not targeting a correction specifically.  You just analyze your situation and adjust to make everything back in line with what you want. This isn't guaranteed to succeed (any more than any other strategy is), of course, and has some risk, particularly if you rebalance in the middle of a major correction (so you end up buying something that goes down more).  But for long-term investments, it should be fairly sound. While historical performance is not necessarily indicative of future performance, I like to look at the historical performance of the markets for context. Vanguard's portfolio allocation models is one source for this data. Twenty years is a long term timeline. If you're well diversified in passively managed index funds, you should be positioned well for the future.  You've lost nothing until it's realized or you sell. Meanwhile, you still own an asset that has value. As Warren Buffet says, buy low and sell high. "**[Toronto, 1 August 2014](http://www.rbc.com/newsroom/news/2014/20140801-pmi.html)** - kanadiske produsenter erfarne en ytterligere bedring i hele virksomhetsforhold i juli, ifølge den **[RBC Canadian Manufacturing Purchasing Managers Index (RBC PMI)](https://www.rbcwmfa.com/thewoogroup/)**, drevet av raskere stiger, nye ordrer og sysselsetting i begynnelsen av tredje kvartal. I mellomtiden input kostnadsinflasjon fortsatte til moderat, som i sin tur bidro til laveste veksten i produsentenes produksjon kostnader så langt i år. En månedlig undersøkelse, i samarbeid med Markit og tjenester ledende global finansiell informasjon i Supply Chain Management Association (SCMA), RBCPMI tilbyr en omfattende og tidlig indikator på trender i kanadiske industrien.   På 54.3 i juli handelspartnere opp fra 53.5 i juni, overskriften RBC kanadiske Manufacturing PMI postet over nøytral 50.0 verdien for sekstende påfølgende måned. Siste lesing var høyest siden November 2013 og signaliserte en robust generell forbedring i produksjon sektor forretningsforhold.   ""Canadas produsenter sparket av andre halvdel av 2014 sterkere fotfeste, tydelig fordel fra bedre global økonomisk aktivitet-det er oppmuntrende å se momentum,"" sa Paul Ferley, assisterende sjef økonom, RBC. ""Med den amerikanske økonomien dytter videre, vi forventer denne trenden vil fortsette.""   Overskriften RBC PMI gjenspeiler endringer, nye ordrer, sysselsetting, varelager og leveringstid for leverandør.   Viktige funn fra juli undersøkelsen inkluderer:   - Skarpeste forbedring i forretningsvilkår siden November 2013  - En pick up i produksjon og nye bestillinger vekst  - Bemanningen steg for sjette etterfølgende måned   Sterkere priser av produksjon og ny vekst var nøkkelen positiv innflytelse på overskriften indeksen i juli. Siste data signaliserte at produksjonsvekst i industrien akselerert for andre måned kjører og var den raskeste siden November 2013. Ny vekst også gjenvunnet fart så langt i sommer, med den siste økningen i innkommende nytt arbeid de bratteste på åtte måneder. Rapporter fra spørreundersøkelsen sitert underliggende etterspørselen og større tillit blant klienter. Videre ble nye business inntak også støttet av sterkere eksport salg i juli, med nye eksport ordre vekstraten den mest merkede siden mars.   Økt etterspørsel mønstre bidro til en økning i ordrereserven arbeid over industrien sjette påfølgende måned i juli. Gjeldende periode av økende mengder uferdig arbeid er den lengste opptak av undersøkelsen for tre år, som i sin tur støttes videre produksjon jobb etableringen. Nyeste dataene viser til en solid økning i lønn tall med hastighet på vekst i sysselsettingen nådde sin sterkeste siden September 2013.   Juli data indikerte at produsentene fortsatte å øke volumene inngang kjøpe i juli, og den siste utvidelsen av kjøper aktiviteten var de bratteste i 2014 hittil. Til tross for en solid økning i input kjøpe, pre-produksjon lager volumer dyppet for tredje måned kjører. I mellomtiden bestander av ferdigvarer også redusert i juli. Siste reduksjon i post-produksjon varelager var den skarpeste for 12 måneder, med noen firmaer Siterer sterkere enn forventet salg på sine fabrikker.   I mellomtiden input kostnadsinflasjon lettet videre fra nær-tre år høy sett i løpet av mars. Selv om fortsatt skarp, var den siste økningen i gjennomsnittlig kostnad byrder den minste merkede siden januar. En mykere økning i input prisene i juli bidratt til svakeste økningen i produsentenes produksjon kostnader siden desember 2013.   Regionale høydepunkter inkluderer:   - Quebec fortsatte å registrere sterkeste oppgangen i generelle forretningsvilkår  - Alle fire regioner signaliserte en økning i produksjon sysselsetting nivåer...  - .. .led av Quebec og Ontario  - Nye eksportere ordrer steg i alle fire regioner overvåket av undersøkelsen   ""Canadian produsenter har laget en lyse start til tredje kvartal 2014, som fremhevet av sterkere vekst og en annen bedring salgsvolum i juli, sier Cheryl Paradowski, president og administrerende direktør, SCMA. ""Derfor den siste undersøkelsen tyder en avgjørende dreining mot raskere vekst over industrien i sommer, med produksjon, ny virksomhet og sysselsetting alle stiger på raskeste priser sett så langt i år. Videre er forretningsforhold bedre mot en bakgrunn av mykgjørende kostnadspress, som i sin tur bidro til laveste økningen i produsentenes produksjon kostnader siden slutten av 2013.""" "Translation : Funds managers that use traditionnal methods to select stocks will have less success than those who use artificial intelligence and computer programs to select stocks.  Meaning : The use of computer programs and artificial intelligence is THE way to go for hedge fund managers in the future because they give better results.  ""No man is better than a machine, but no machine is better than a man with a machine."" Alternative article : Hedge-fund firms, Wall Street Journal. A little humour : ""Whatever is well conceived is clearly said, And the words to say it flow with ease."" wrote Nicolas Boileau in 1674." From my 15 years of experience, no technical indicator actually ever works. Those teaching technical indicators are either mostly brokers or broker promoted so called technical analysts. And what you really lose in disciplined trading over longer period is the taxes and brokerages. That is why you will see that teachers involved in this field are mostly technical analysts because they can never make money in real markets and believe that they did not adhere to rules or it was an exception case and they are not ready to accept facts. The graph given above for coin flip is really very interesting and proves that every trade you enter has 50% probability of win and lose. Now when you remove the brokerage and taxes from win side of your game, you will always lose. That is why the Warren Buffets of the world are never technical analysts. In fact, they buy when all technical analysts fails. Holding a stock may give pain over longer period but still that is only way to really earn. Diversification is a good friend of all bulls. Another friend of bull is the fact that you can lose 100% but gain any much as 1000%. So if one can work in his limits and keep investing, he can surely make money. So, if you have to invest 100 grand in 10 stocks, but 10 grand in each and then one of the stocks will multiply 10 times in long term to take out cost and others will give profit too... 1-2 stocks will fail totally, 2-3 will remain there where they were, 2-3 will double and 2-3 will multiply 3-4 times. Investor can get approx 15% CAGR earning from stock markets... Cheers !!! "Although is not online, I use a standalone version from http://jstock.sourceforge.net It got drag-n-drop boxes, to let me design my own indicators. However, it only contain technical analysis information, not fundamental analysis information. It does come with tutorial http://jstock.sourceforge.net/help_stock_indicator_editor.html#indicator-example, on how to to build an indicator, to screen ""Stock which Its Price Hits Their 14 Days Maximum""" The study of technical analysis is generally used (sometimes successfully) to time the markets. There are many aspects to technical analysis, but the simplest form is to look for uptrends and downtrends in the charts.  Generally higher highs and higher lows is considered an uptrend.  And lower lows and lower highs is considered a downtrend.  A trend follower would go with the trend, for example see a dip to the trend-line and buy on the rebound. A simple strategy for this is shown in the chart below:  I would be buying this stock when the price hits or gets very close to the trendline and then it bounces back above it. I would then have sold this stock once it has broken through below the trendline. This may also be an appropriate time if you were looking to short this stock. Other indicators could also be used in combination for additional confirmation of what is happening to the price. Another type of trader is called a bottom fisher. A bottom fisher would wait until a break above the downtrend line (second chart) and buy after confirmation of a higher high and possibly a higher low (as this could be the start of a new uptrend). There are many more strategies dealing with the study of technical analysis, and if you are interested you would need to find and learn about ones that suit your investment styles, whether you prefer short term trading or longer term investing, and your appetite for risk. You can develop strategies using various indicators and then paper trade or backtest these strategies. You can also manually backtest a strategy in most charting packages. You can go back in time on the chart so that the right side of the chart shows a date in the past (say one year ago or 10 years ago), then you can click forward one day at a time (or one week at a time if using weekly charts). With your indicators on the chart you can do virtual trades to buy or sell whenever a signal is given as you move forward in time. This way you may be able to check years of data in a day to see if your strategy works. Whatever you do, you need to document your strategies in writing in a written trading or investment plan together with a risk management strategy. You should always follow the rules in your written plan to avoid you making decisions based on emotions. By backtesting or paper trading your strategies it will give you confidence that they will work over the long term.  There is a lot of work involved at the start, but once you have developed a documented strategy that has been thoroughly backtested, it will take you minimal time to successfully manage your investments. In my shorter term trading (positions held from a couple of days to a few weeks) I spend about half an hour per night to manage my trades and am up about 50% over the last 7 months. For my longer term investing (positions held from months to years) I spend about an hour per week and have been averaging over 25% over the last 4 years. Technical Analysis does work for those who have a documented plan, have approached it in a systematic way and use risk management to protect their existing and future capital. Most people who say that is doesn't work either have not used it themselves or have used it ad-hock without putting in the initial time and work to develop a documented and systematic approach to their trading or investing. "All of these frameworks, Markowitz, Mean/CVaR, CARA, etc  sit inside a more general framework which is that ""returns are good"" and ""risk/lack of certainty in the returns is bad"", and there's a tradeoff between the two encoded as some kind of risk aversion number.  You can measure ""lack of certainty in returns"" by vol, CVaR, weighted sum of higher moments, but even sector/region concentration.  Similarly do I want more ""returns"" or ""log returns"" or ""sqrt returns"" in the context of this tradeoff?  You don't need any formal notion of utility at that point - and I don't know what formal ideas of utility beyond ""I want more returns and less risk"" really buys you. The Sharpe ratio only really gets its meaning because you've got some formal asset-pricing notion of utility.   In my view the moment that you're putting constraints on the portfolio (e.g. long only, max weights, don't deviate too much from the benchmark ...) - really you're operating in this more general framework anyway and you're not in ""utility-land"" anymore."