Is there a single best indicator for reversals

gerry64

Mark what would you use if you had to find a stock reversal? using only one indacator and or one overlay?

markd

Well, I wouldn't want to have to use just one, but I think the most useful indicator, if you can call it that, in addition to raw price, is volume.

Price and volume should work together to advance the trend (up or down). So, a good price change should attract good volume, and good volume should produce a good price change (i.e. a long body making new prices for the current leg). Good volume means at least somewhat, but not extremely above the one month daily volume average. When price and volume don't "work together", further progress is less likely. Long wicks or tails, or very compressed range on good volume indicate price and volume are not working together.

Two other signs are "climax volume", where even though there might be a long body, there has been so much buying or selling that no one is left to buy (up leg) or sell (down leg); and the other is diminishing volume, where prices continue moving in the current direction, but on very low volume, indicating that new prices in that direction are not attracting interest.

But, if I could have an overlay or indicator in addition to price and volume, it would be price channels or Fast Stochastics. Prices in an uptrend often reverse around the lower 21 period price channel, and prices in a down trend often reverse around the 21 period upper channel. Sometimes price will break the channel, sometimes not.

On the Fast Stochastic, you would look for a cross below 20 in an uptrend or a cross above 80 in a down trend. By trend, I mean the long term MA direction.

gerry64

thxs, always nice to hear others ideas...