As you all probably know, I think technical indicators are often self-fulfilling prophecies. If a lot of traders, especially high frequency traders, think that an indicator works, then they’ll make trades when they see the indicator. If enough of them do it, as is the case when it’s all computers, then the indicators work more often than they don’t. If all signs point to buy and lots of people buy, then the stock goes up and we can look back and say that the indicator worked.
Bearish indicators will lead them to sell. Bullish indicators will lead them to buy. When they look back at how their trades performed against the indicator, they’ll be validated as long enough other traders join them. These traders do a lot of trading, so just a few ticks upward means a profit to them and they just need to be right more often than they’re wrong.
Most technical indicators have boring names, like cup and handle, but I discovered one that actually has an interesting name – it’s called the DEATH CROSS. (it’s made more ominous because I put it in all caps and I bolded it!)
(click here to continue reading…)