| There are a staggering number of day trading | | | | may find yourself a step behind the action if you rely |
| systems on the market today, and they range from | | | | solely upon oscillator based trade selection. There are |
| fully automatic systems to exotic systems based | | | | a number of oscillators that claim to be leading |
| upon astrology. The day trading systems which lie | | | | indicators, but their effectiveness as leading indicators |
| between these two extremes are the ones of | | | | is generally dubious, at best. On the other hand, it is |
| interest to the average trader. For a novice trader, | | | | possible to glean a tremendous amount of |
| choosing a system is complex and difficult because it | | | | information from oscillator and indicator analysis and I |
| is tenuous to ascertain which system will actually | | | | do not mean to lessen or demean their importance. |
| work in which system is nearly hype. Most good | | | | My point is a simple one, oscillators and indicators are |
| systems, though, are comprised of some time-tested | | | | generally lagging indicators and understanding this |
| core components that differentiate them from the | | | | weakness is essential in employing their use in your |
| less than effective systems. | | | | trading system. |
| Throughout my career as an institutional trader I | | | | Finally, I think it is important to have information or a |
| have learn to day trade several different systems | | | | data feed coming directly from whatever underlying |
| that are effective and profitable. These time-tested | | | | security is being traded. For example, I trade primarily |
| systems usually containthree important characteristics | | | | the financial index e-mini futures, so I am particularly |
| which are worth noting. All contain some emphasis on | | | | interested in raw data from the New York Stock |
| price action or price movement. Nothing is more basic | | | | Exchange. To accomplish this goal, I generally like to |
| or essential to a system than what the price | | | | use the NYSE tick. This particular indicator compares |
| movement of the traded equity is doing, and the | | | | advancing and declining issues on the New York |
| manner in which price is behaving. Price action analysis | | | | Stock Exchange and gets no information or data |
| is among the oldest disciplines in trading systems, and | | | | from the futures exchanges. Using this raw data, I |
| its importance has not lessened over the years. As a | | | | get a bird's eye view of what is actually occurring on |
| matter of fact, there are systems based solely upon | | | | the exchange. I feel this is a distinct advantage in my |
| price action. Any discussion of price action | | | | trading, as the futures traders have not always |
| methodology would require a discussion the size of a | | | | reacted to the New York Stock Exchange price |
| small book, as there are many interpretations of the | | | | movement and I am therefore aware of the trends, |
| relationship between price movement and the market | | | | or lack of trends, that occur in real-time. Oddly |
| prediction. Like all things in trading, some price action | | | | enough, when I have introduced this indicator to |
| analysis is quite effective and other analysis is not as | | | | traders who have relied solely upon oscillators they |
| effective. It will take some investigation and research | | | | are often amazed at the added depth of knowledge |
| for the average trader to determine which price | | | | they acquire when comparing the NYSE tick and their |
| action methodology best suits the trading style he or | | | | familiar oscillator based indicators. For that reason |
| she intends to employ. | | | | alone, I believe it is important to employ data that |
| A second characteristic of a good trading system is | | | | does not come directly from the futures exchanges. |
| the utilization some form of indicator or oscillators. In | | | | Quite simply, data derived directly from the exchange |
| a recent years, indicator and oscillator based systems | | | | of the underlying security will supply you with |
| have gained great popularity. Again, there are trading | | | | information you might not normally be accustomed to |
| systems based solely upon oscillator indications. I | | | | using. |
| caution against using systems employing only | | | | As you can see, I like using trading systems that are |
| oscillators, as there are some inherent weaknesses in | | | | multifaceted and give me a broad view of market |
| this methodology. Of utmost importance and | | | | movement. It is my opinion that trading systems that |
| evaluating oscillators is the tendency for them to be | | | | rely upon a single indicator often result in a skewed |
| lagging indicators. Most oscillators receive information | | | | market viewpoint. Above all, when I day trade I |
| from a data feed and apply a specific mathematical | | | | want to develop the fullest understanding of the |
| formula or analysis to this data. Therefore, by | | | | market movement possible, and I accomplish this by |
| definition, oscillators tend to lag the market and you | | | | looking at the market from several points of view. |