Insights, strategies, and guides to help you trade smarter.
Market behavior is never quite as predictable as one might expect, which makes understanding leading vs lagging indicators important for making informed trading decisions. Instead of trying to find one best indicator, successful traders learn to know when a particular signal is valuable and when they should ignore it.
In this modern era larger volumes of data and computational power are available to traders now than ever before, but having access to more data does not automatically mean that traders have better strategies for trading. The point is to understand what changes actually bring additional value and what changes help them improve their past performance.
Today traders employ technical indicators as a way to structure available market data and build consistent strategies based on them. However, technical indicators can also cause various problems, and common indicator mistakes may lead to poor trading decisions or weaken an otherwise sound strategy. The matter is that usually the problem is not in the indicator itself but in the approach of traders to work with them.
A trading strategy could be great in backtesting and yet perform poorly when tested against new market environments. Overfitting trading strategy design is therefore one of the major obstacles for anyone who designs, optimizes, or evaluates an automated trading system.
Directional dependence tests are quantitative techniques used to evaluate if the direction of one variable holds any information about the future direction of another variable. Directional relationships can provide insights into whether a given directional pattern is persistent, random, or could be of use in developing a trading strategy.
While more than one trading position is open simultaneously, analyzing each position separately might be misleading. The concept of portfolio correlation allows traders to measure the extent to which different securities or trading strategies interact. Two positions could be diverse in terms of the securities being used, but deliver the same performance under changing market conditions.