What is the single best day trading indicator? – Summary of the theory of change ratios and why they work!

As a new or experienced trader, you are likely looking for a statistical advantage that will give you an edge when trading the markets. There are hundreds of indicators on the market, but the truth is that only a couple of indicators actually work. Almost all indicators fail when it comes to backtesting and analyzing real-time price data. Obviously, this is something few people are willing to talk about because there were no alternatives just a few months ago.

Most indicators just don’t work because of the way they are designed. There are two problems that most technical analysis techniques have today:

1. Signal-Noise

2. Signal delays or delays

Signal noise is one of the biggest problems with most indicators. The reason is that they are mainly based on the closing price. The closing price changes every time a symbol goes up or down. As an example of how noisy an indicator like the moving average or the RSI is. If you take a 60 minute bar on an actively traded symbol, you can easily have a couple thousand false signals on a single bar. That is a major problem that technical analysis must overcome.

Signal delay is the other big problem. Most indicators need to retrace at least a couple of bars, but that means relying on old data. The more you look back for signal stability, the more out of touch the indicator will be with the current price. One of the other problems that causes signal delay is the fix for signal noise. Most indicators only allow you to calculate the indicator after a bar closes. This cleans up noise from the signal, but then the signal has extreme delay issues.

The solution to most technical analysis problems comes from a new class of technical analysis and indicators. These are called coefficients of the theory of change. What they do is focus on the data that counts and is responsible for creating trends. Some examples of the data that counts are:

• Bullish markets typically have a series of higher highs and higher lows.

• Downtrending markets typically have lower lows and lower highs.

• Choppy markets have a high percentage of bars that overlap each other.

Most trends have certain price characteristics and nowhere does the current closing price dictate the trends. For a market to rise, it must reach new highs. For a market to go down, you need to make lows. Meanwhile, most of the closing price data is producing noise.

In the end, theory of change indices are the best indicators for day trading because they only focus on the data that counts. The gear ratios are not only precise, but have very little noise. The price indication only reacts to bars that make highs, lows and percentage overlap. All of this data is divided into easy to read lines that are color coded as follows.

• Green = Measures the strength of the trend.

• Red = Measures the strength of the downtrend

• Yellow = Measures agitation by the percentage of bar overlap.