Are there any aspects of financial technical analysis that don seem quite so much like hokum or tea leaf reading?
The oscillator set known as “stochastics” (a bit of a misnomer) is based on the observation that a stock which is advancing will tend to close nearer to the high of the day than the low. The reverse is true for declining stocks. It compares today’s close to the highest high and lowest low of the last five days. This indicator attempts to provide a number which will indicate where you are in the declining/advancing stage. • Can I develop my own technical indicators? Yes. The problem is validating them via some sort of backtesting procedure. This requires data and work. One suggestion is to split the data into two time periods. Develop your indicator on one half and then see if it still works on the other half. If you aren’t careful, you end up “curve fitting” your system to the data.
