This is my reply to the second of three questions posted in the trading room today by member @sur-non that others new to technical analysis might find useful:
Q: […I] also notice[d] joefriday (I like his charts a lot) uses the MCO and wonder what your thoughts (or his) are on that.
A: I’ve dabbled with the McClellan Oscillator (MCO) on & off in the past but as with the dozens, if not hundreds of indicators & other TA tools that I’ve seen over the years, that one never stuck for whatever reason. As such, I can’t render an opinion as to the effectiveness of the MCO or where & when to use & not use it but that by no means an I saying that the MCO isn’t a useful or even an excellent tool to incorporate into your technical analysis (TA), simply that I don’t use it often.
I am a firm believer of the K.I.S.S. principle when it come to technical analysis: Find a handful of indicators, moving averages, etc. (any TA tools) that you like & that mesh well with your particular trading style (which will almost certainly evolve over time) and then learn those indicators like the back of your hand. Over time you will learn to know when they work well & when they don’t. E.g.- You might have heard me discuss how I largely ignore bullish & bearish crossovers on the MACD & PPO when they have been flattening out with very little separation between the MACD or PPO line & its signal line) which is a function of the stock, ETF or index above trading in a mostly sideways range. The reason for that is because I’ve found (the hard & expensive way) over the years that the rate of whipsaw signals on bullish & bearish crossover is vastly higher when there hasn’t been clean separation & a distinct trend between the MACD (or PPO) line & its respective signal line.
With that being said, I encourage everyone to read up & experiment with as many of the indicators & other TA tools out there. I also incorporate new indicators & TA tools into my short-list of favorites from time to time & temporarily (or permanently) abandon those that no longer seem to be working effectively. Sometimes I’ll also adjust the settings of an indicator.. E.g.- With some stocks or other securities that have a regular pattern of becoming extremely overbought or oversold, when using the RSI, I will disregard the traditional 70 (overbought) and 30 (oversold) levels & add my own OB & OS lines at higher or lower levels that have historically triggered reversals in that particular stock.
Bottom line: Read up on & experiment with as many TA tools as you can as whatever pace you care to go at. Discard those that seem overly complex or that don’t seem to add any utility to your own unique way of analyzing charts. Focus on just a few at any one time as I’ve seen other traders post charts with so many indicators that my head was spinning. Trying to use too many indicators is like trying to hold sand in your hands: Most of it (i.e.- potential buy & sell signals) will slip through as the human brain can only focus on so much at once. Hope this helps & I’ll defer to @joefriday on his experience with the MCO as I also find great value in his charts & analysis.
BTW- The free Chart School at stockcharts.com is one of the best learning resources for TA that I have yet to come across, at any price. No subscription required: https://stockcharts.com/school/doku.php?id=chart_school