Classification/Categorization of Indicators

[tomsk]

As many of us know, Mobius is a well respected coder, developer, programmer, mentor, etc in the ThinkScript community

Several years ago he shared his thoughts on indicators. Since this thread is all about indicators, I thought I would share his views with you.
I captured these comments he posted several years ago in the ThinkScript Lounge which resonated with me as some really good points to consider.

Mobius©: No indicator is better than a trader who can read price well. Indicators are for computer trading and traders that need something to lean on for risk decisions. The uniform method in categorizing indicators is to divide them into 5 types: trend, momentum, volatility, volume or pivot. Those are the categories used in the development of CSA (combined signal approach) programs

Simple category descriptions

Momentum: If price is involved with no averaging at the first derivative then it's most likely a momentum indicator such as Stochastic or RSI.
Pivot: If price points alone are plotted it's a pivot study.
Volume: If volume and its derivatives are plotted it's a volume study
Trend: if price is used for any sort of single moving average that's trend.
Volatility: Any study that incorporates a Black Scholes Pricing Model or Binomial pricing model.

I discovered a while back that most can have the best indicator in the world and not know it because they never spend the time with it to know when and how to use it. So I entertain myself writing them and don't worry about trying to educate folks on how to use them.

 

[skynetgen]

Basically that is the same categorization I arrived to by studying and backtesting everything I could lay my hands on. Except what I consider "volatility" is indicator linked to average true range and deviations from it.

No indicator or combination of them represents a complete trading system. What indicators are indispensable for though is back testing,scanning and algo trading. However indicators needs to be used just as signals to feed into the ruleset . By themselves they cannot be a sole basis for buy/sell decision

And another thing - it can be be the best set of rules and best set of indicators. But they must be applied in correct market condition to correct universe of stocks. - Figuring the universe is a very big and overlooked part of trading

 

[tomsk]

Basically that is the same categorization I arrived to by studying and backtesting everything I could lay my hands on. Except what I consider "volatility" is indicator linked to average true range and deviations from it.

No indicator or combination of them represents a complete trading system. What indicators are indispensable for though is back testing,scanning and algo trading. However indicators needs to be used just as signals to feed into the ruleset . By themselves they cannot be a sole basis for buy/sell decision

And another thing - it can be be the best set of rules and best set of indicators. But they must be applied in correct market condition to correct universe of stocks. - Figuring the universe is a very big and overlooked part of trading

Very well articulated @skynetgen I couldn't concur more!