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Indicators must align with specific market conditions for accuracy from "summary" of Trading Systems and Methods, + Website by Perry J. Kaufman
Market conditions are dynamic and vary significantly over time. To achieve accurate trading signals, it is essential for technical analysis tools to resonate with the prevailing environment. Different market phases—such as trending, ranging, or highly volatile—demand distinct approaches and corresponding indicators. During a trending market, momentum indicators like the Moving Average Convergence Divergence (MACD) or Relative Strength Index (RSI) can provide valuable insights, signaling the strength and direction of price movement. Conversely, in a ranging market, oscillators such as the Stochastic or Bollinger Bands may be more effective, as they can identify overbought or oversold conditions, providing opportunities for mean reversion. Understanding the underlying market structure is crucial. Indicators that perform well in one condition may yield false signals in another. For instance, a trend-f...
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