Indicator Periods

Beginner Questions
#1

Right - let’s start this morning again shall we (and get on with our learning and trading).

When you use any of the indicators most of them (if not all) give you the option of changing the period.

What I want to know is this:

Let’s just take ADX for example:

The default period is 14 (like most of the other indicators).

Does this mean that on the Daily Chart the indicator is assessing 14 days;
on the Weekly Chart it is assessing 14 weeks;
on the 4 Hour Chart it is assessing 14 ‘blocks’ of 4 hours;
on the 1 Minute Chart it is assessing 14 minutes?

Also - by the way - why is the number 14 so significant (most of the indicators as you well know default to 14)?

Anyone?

Regards,

Dale.

#2

Interesting question. Yes, the “14” you refer to is the number of bars or periods on your chart. You may already know that the ADX is trying to indicate whether the market is trending or ranging, not whether it’s going to head north or south.

I think the number of periods you choose is far less important than what the indicator is telling you about price action. Is there sustained buying/selling or is there congestion? Are we trending or are we ranging? If you’re looking for correlations across pairs, then it’s also important to use the same number of periods on each related chart. (Try not to curve fit these things to “match” past action.) Hope this helps.

Here’s a link to ADX info if you aren’t familiar with it:
Discerning Movement with the Average Directional Index - ADX

Great chart from this article shows ADX rising during strong downtrend.

#3

Thanks for the information.

Maybe ADX was a bad example to use - I was just wondering how the indicators are applied on the different time frames.

Are you saying that I am right?

Let’s take CCI - also defaults to 14.

So if CCI is applied to Daily charts - analysis is based on a 14 day period? If CCI is applied to Hourly charts - info is based on 14 hours?

Still don’t know what the significance of 14 is. I mean - on any chart that I open I have way more that 14 periods displayed i.e. way more than 14 days on the Daily, way more than 14 hours on the hourly.

Is the 14 just supposed to signify approximately 2 weeks?

And - if you increase the number from 14 on any of the other indicators are you not making the analysis more ‘true’ or ‘accurate’?

Regards,

Dale.

#4

Still don’t know what the significance of 14 is.

What? No one told you? It’s the magic trading number. There I said it! Let the cat out of the bag, I did! Now you can all get rich beyond imagination!!!

No,no… you’re right. It’s not the magic trading number. sigh

Most of these things were cooked up by stock market and futures traders. My impression is that sometimes they just wanted to sell a new book or attach their name to something. Do you notice how much duplication there is? Just for fun, look up “multicollinearity” when you have a spare minute or two.

In any case, the inventors tested their ideas just like we do. They found that certain periods seemed to reflect market conditions in an understandable and actionable way. There is some real math involved, but don’t sweat why the indicator is set to this or that number. The importance is in understanding what the indicator is measuring (you can look up the formulas) and what the [U]market price is telling you through that indicator[/U].

Sometimes you don’t need to know [U]why[/U] so much as [U]what[/U].

Any of you college-boy mathematicians care to chime in? Come on, don’t be shy…

#5

Thanks again.

Sorry - I just have that kind of mind - I WANT TO KNOW WHY!!! This type of thing could keep me awake for days!!!

Anyway - having said that - it begs another statement from me:

Who knows - it could be the ‘magic’ figure. What I mean to say is that maybe since this whole thing began brokers and traders and whoever came up with this number as the ‘ideal’ number to base their actions on BUT does it not stand to reason that things have changed since then i.e. I am sure that things happen a hell of a lot faster nowadays so maybe 14 is no longer the magic number. I don’t know.

By the same token - I would then assume that increasing this number would give a more ‘true’ value for the indicator concerned (although I do realise that this contradicts my statements above).

Just by the way I have seen some REALLY weird numbers being put into MACD for example - especially when it comes to some of the Gold dealers etc. etc. Have THEY found a ‘magic’ set of number for Gold for instance?

Regards,

Dale.

#6

well for me 7 is the magic number, in fact my system revolves around the thing. In saying this it has nothing to do with indicators so I wouldn’t neccessarily try it with them since I have and it rarely works. But certain numbers may work better than others so I would just experiment. Best eh!

#8

Sorry - I just have that kind of mind - I WANT TO KNOW WHY!!! This type of thing could keep me awake for days!!!

Just have to commit on this statement, When I was in collage my GPA went up a whole point when I did these two things

  1. Accept because as an answer. Sometimes it it too hard to figure out everything and when you do, you realize that that is information that you will never need.
  2. I took a shot of Jack Daniels befor every test. I don’t recommend this to everyone just me.

As for your question does a larger number give you a more true value? When you increase the number you will smooth out the value, a smaller number will bounce up and down faster. With a large number you will not get as many buy and sell indications, a smaller number will give you alot of indicators. So the answer is yes and no.

I saw a video on youtube that said you want to make the numbers different for each time frame, I have not tryed it too much so tell me how it works. Like Shadow said expermint and find what you like.

Good Luck and keep you stick on the ice.

Hey Shadow Gooo Wings!!!

#9

I WANT TO KNOW WHY!!! This type of thing could keep me awake for days!!!

First, relax. You may wish to consider switching to decaf…

Second, your post contradicts itself buy screaming “why” and then documenting your own success when you simply accepted “what” in the form of “’[U]because[/U]’ is an acceptable answer”.

Third, and most important:

I took a shot of Jack Daniels befor every test.

I’ll see your Jack Daniels and raise you a shot of nyquil. :rolleyes: