The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

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Introduction to the Art and Science of Technical Analysis


For example, applying an oscillator that uses price, volume, and open interest
as part of its calculation will yield inconsistent readings should one of the data be
unavailable on the charting platform. The analysts may not be aware of the missing
data and struggle to make sense of the inconsistency. The accuracy of the data is also
of paramount importance for effective analysis of price and market action. Drop-
outs in the data as well as the inclusion or exclusion of non‐trading days will cause
inconsistent readings between charting platforms. There may also be variations in
the oscillator readings should volume be replaced with tick volume, sometime also
referred to as transaction volume. Tick volume tracks the number of transactions
over a specified time interval, irrespective of the size of the transactions.
It is also important to note that conflicting signals may not always be in fact
conflicting. As pointed out, the time horizons over which each signal is applied may
be different. In Figure 1.16 we observe that the CCI readings over the range of prices
are markedly different. The 20‐period CCI indicates a slightly overbought market
whereas the 100‐period CCI suggests that prices are slightly oversold. There is in
fact no real conflict between the two apparently opposing signals. The indicators are
merely pointing out that prices are slightly overbought or overextended in the short
term, but over the longer term, prices are in fact slightly oversold, that is, relatively
cheap. Therefore, instead of viewing the signals as opposing or contradictory, the
astute trader immediately realizes that the most advantageous point for initiating a
long entry would be when prices are cheap both in the long and short term. This is
easily identified on the charts by looking for oversold readings on both the 20‐ and

fIgure 1.16 Conflicting Signals on the Daily Alcoa Inc Chart.
Courtesy of Stockcharts.com
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