Quant analytics: Most reliable technical indicators for identifying if in trending or range-bound market?
Just wondering what people think about the best indicators to use for this case. I’ve experimented with a few things; ADX, ATR, fast/slow moving average difference, gradients of SMA’s, momentum etc. They are all lagging indicators and I know there’s no crystal ball, but interested to see what things have worked for others.
I use ADX. When the 14-day ADX is above 30 and rising, the trend is strengthening and I rely on trending indicators like moving averages and MACD. When ADX is below 25 and falling, the trend is losing strength and I rely more on non-trending indicators like stochastic and RSI. When ADX is below 20, especially below 15, the asset has “non-trended long enough” and I look for a breakout and resumption of a new trend – which direction depends upon what the non-trending indicators are telling you.
One limitation with indicators (be it MA/Stoch/MACD/ADX…) is their measurements are relative to a cycle. So they work great when market cycle length coincides and not so well when cycle lengths don’t match. So I find it easier to just assume any thing with ascending price highs & lows as trend (vice versa for down trends) and everything else on chart as range.
Price action combined with ratios and a sturdy understanding of structural price development is best…
NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!