Measuring An Indicator's Forecasting Ability by George R. Arrington Measuring An Indicator's Forecasting Ability by George R. Arrington Indicators are used to forecast a market.
Traders have their favorite indicators.
Arrington explains how to measure a technical indicator's ability to forecast prices. Many traders use a variety of technical indicators to forecast changes in the prices of stocks and commodities, including such diverse indicators as stochastics, relative strength, on-balance volume, sentiment index, weather patterns, candlestick patterns, the Arms index and several pattern recognition techniques such as wave and cycle theories. In addition, many traders have one or two indicators of their own devising. A good indicator leads changes, and its signal is helpful when forming a trading strategy. Different technical indicators are useful at different times and in different markets.