Request to Trading View: include ADX-2 on crypto screener
The screener is very powerful with advanced filtering such as (fully dilluted) marketcap ranges and lot more interesting filters. It applies a condition (or set of conditions) to all coins in the filter for trigger alerts. There's a wide set of conditions available, such as bollinger bands, rsi 14, macd etc. However, their parameters can not be configured. So the conditions are only based on indicators with their default values. Because of this, the ADX 2-period is not included as an option, while this is one of the most important screening indicators in the (crypto) game.
By eliminating as much lag as possible in a technical indicator the results get closer to the present. Which is the most important aspect of every analysis, understanding the present. If you visualise the market price as a rock which is flying through the air because it was thrown, understanding the present means knowing wether you are increasing or decreasing in speed and height right now. If you are blind to this in the present context, you can not look forward.
This particular blindness is a metaphor for using technical indicators with long averaged smoothing to estimate the future price. Since an averaged is used to smooth out the signal values, it is fundamentally impossible to use it for forecasting by itself. The majority of the traders don't know this (or don't care) and are perfectly fine using long and slow MACD's to forecast price movements or wait for their long period RSI divergences. Sure, this works to some extend. But by applying this principle, you'll end up with different methods to analyse charts which have their own unique, and surprisingly effective, signalling.
Besides that, default parameter values for technical indicators are always wrong. Each indicator has to be calibrated specific to the chart it is applied to. A good example of this is trend following with Bollinger bands (tm). With this method, the most recent breakout should "ride the band". This means you need to either pick a larger or a shorter period to have the price fit the band properly. This is important if you want to chart accurately and have your squeezes timed correctly.
So knowing all this, you'll start using the two-period ADX indicator for example. It is the closest to the present you can get and is always configured correctly. This has some big advantages many traders are unaware of. The signals derived from this will all deliver similar trade setups, which are often very promising trend following positions. The indicator is extremely sensitive, that is what makes it a good screener. You can filter out over 85% and it will leave you with just enough signals to look at. This remaining 15% are the "exceptional" conditions where a trend is so weak low-risk high-profit entries can be found with them.
I've put "exceptional" between quotes because if you screen the whole market like this, the signals aren't that "exceptional" anymore. But jokes aside, that's the idea behind it. Filtering out everything but the outliers and start analyzing from there.
By eliminating as much lag as possible in a technical indicator the results get closer to the present. Which is the most important aspect of every analysis, understanding the present. If you visualise the market price as a rock which is flying through the air because it was thrown, understanding the present means knowing wether you are increasing or decreasing in speed and height right now. If you are blind to this in the present context, you can not look forward.
This particular blindness is a metaphor for using technical indicators with long averaged smoothing to estimate the future price. Since an averaged is used to smooth out the signal values, it is fundamentally impossible to use it for forecasting by itself. The majority of the traders don't know this (or don't care) and are perfectly fine using long and slow MACD's to forecast price movements or wait for their long period RSI divergences. Sure, this works to some extend. But by applying this principle, you'll end up with different methods to analyse charts which have their own unique, and surprisingly effective, signalling.
Besides that, default parameter values for technical indicators are always wrong. Each indicator has to be calibrated specific to the chart it is applied to. A good example of this is trend following with Bollinger bands (tm). With this method, the most recent breakout should "ride the band". This means you need to either pick a larger or a shorter period to have the price fit the band properly. This is important if you want to chart accurately and have your squeezes timed correctly.
So knowing all this, you'll start using the two-period ADX indicator for example. It is the closest to the present you can get and is always configured correctly. This has some big advantages many traders are unaware of. The signals derived from this will all deliver similar trade setups, which are often very promising trend following positions. The indicator is extremely sensitive, that is what makes it a good screener. You can filter out over 85% and it will leave you with just enough signals to look at. This remaining 15% are the "exceptional" conditions where a trend is so weak low-risk high-profit entries can be found with them.
I've put "exceptional" between quotes because if you screen the whole market like this, the signals aren't that "exceptional" anymore. But jokes aside, that's the idea behind it. Filtering out everything but the outliers and start analyzing from there.
Comment:
I wrote this article as a feature request to tradingview's crypto screener. Everything is based on my own experiences and preferences. Some might consider it pseudo science, others might consider it garbage. But it has been one of the most important insights that stuck to me, and is one of the core principles I use in every chart analysis. I'm convinced this helps me to find low risk, high reward trend following entries. Which is very useful for the crypto market.
