For what my opinion is worth, I agree totally with Rik.
The best that any charting tool can do is use past history to
generate buy and sell signals. BC goes further than many in that it
also gives back-testing and AIO facilities. It is very reasonably
priced compared to the likes of MetaStock, AmiBroker, TradeStation,
etc.
To answer the question `do you need to change the default
parameters?', I will use RSI as an example. Most traders that I know
simply use the default settings supplied by their charting package,
unquestioningly. For RSI that value is 14, and I notice that it is
also the `factory' default in BC. BC's highly automated AIO function
offers incentive to move from default to optimized parameters.
Many traders use oscillators like RSI, to highlight
oversold/overbought situations, and also divergences. You can of
course use BC's RSI plots to (manually) look for these, just as you
would with any other package. But BC also uses RSI to generate
buy/sell signals when RSI crosses a MA of itself, which is a novel
idea.
I have used RSI as an example, but the other indicators work
similarly. I will compare some of BC's factory defaults with those of
MetaStock (where appropriate):
BB: both BC and MS default to a MA of 20 (with 2 std deviations)
MACD: BC uses the industry standards of 12, 26,9; MS uses a non-
standard system.
SO: BC uses 5 and 5; MetaStock uses 5 and 3.
RSI: both BC and MS default to 14.
CCI: BC defaults to 15, MS to 14.
DMI: both BC and MS default to 14.
ROC: BC defaults to 10, MS to 5.
WMS: BC defaults to 10,-80,-20; MS to 14,-80,-20.
PPO: BC uses 5,12; MS to 9,25.
MFI: both BC and MS default to 14.
Of course, it is easy enough to change the default settings in either
product.
There is no `holy grail' set of parameters, because different stocks
move in constantly changing cycles. That is what AIO is attempting to
capture, by using the technique of profitability back-testing.
Back-testing over too small a statistical sample can occasionally be
meaningless. For example, across a short time period there might be
one short, sharp price movement that accounts for a disproportionally
huge gain. A certain parameter setting might catch this price
movement early enough, while another might generate the buy signal a
day or two too late, causing the profit to be missed. That is part of
the fickle nature of TA.
You can set parameters to generate either earlier or later entry /
exit signals. Earlier ones (before a reversal has firmly established
itself) will catch greater profits when they do work, but will also
fail more frequently because they are more likely to pick up `noise'
along the prevailing trend. Later entries and exits will tend to
generate lower profit trades, but will be more consistently
successful. That is a finely judged balance.
In any trade, you will make money if and only if the price trends far
enough between the entry and exit to cover your costs. If the trend
reverses too quickly, even high probability entries and exits can
result in a loss. That is not the fault of the buy / sell signals,
the indicators or parameters used, or the charting package. You can
use the likes of trend lines, previous support/resistance, or
Fibonacci retracements, to try to guess how far prices will move, but
the key word is `guess'. News can cause unexpected or chaotic short
term price movement that can undo even the most conscientiously
applied TA. The best you can do is use a combination of techniques to
move the probabilities as far as possible in your favor (and then
size your positions conservatively enough to ride out any temporary
run of losses).
Finally, buy / sell signals are but the tip of the trading iceberg.
Whether you ultimately profit is determined by a number of other
factors, that are not directly addressed by many charting packages,
e.g.
 How do you manage risk, and exit losing positions (e.g. stop
losses)?
 How do you select which stocks to trade?
 Do you check for confirmation in longer term trends, news,
fundamentals, director dealings, sector rotations, correlation with
other stocks in the same industry, general market direction?
 Do you pyramid your positions, or take profits as the trade
progresses?
 How do you size your positions, relative to your total capital?
 How diversified is your trading, i.e. how many simultaneous
positions to you manage, and how correlated are they?
 Do you have a trading plan, and how well enough disciplined are you
to adhere to it?
 How do you cope psychologically with losses?
 How much time do you put in researching the markets?
 Do you trade short positions as well as long?
 Do you hedge long and short positions against each other?
Regards
David
--- In [EMAIL PROTECTED], "Rik Rasmussen" <[EMAIL PROTECTED]>
wrote:
> I believe I did answer his question.
>
> The default parameters may be very satisfactory for some users.
Others may
> choose to change the parameters.
>
> I can not tell anyone if they should change them or not. They have
to decide
> that, based on sufficient understanding of the indicators and
parameters to
> make that decision.
>
> None of this is unique to Best Charts, this is all Technical
Analysis 101
> stuff. it is not the purpose of this group to teach basic technical
> analysis. There are hundreds of free web sites that already do that
better
> than we could do it here.
>
> Rik Rasmussen
> Best Charts Yahoo Group Moderator
> http://groups.yahoo.com/group/bestcharts/
>
>
>
> > -----Original Message-----
> > From: slimhart98 [mailto:[EMAIL PROTECTED]
> > Sent: Friday, December 03, 2004 11:59 AM
> > To: [EMAIL PROTECTED]
> > Subject: [bestcharts] Re: Please clarify Bestcharts
> >
> >
> >
> >
> >
> > Ric:
> >
> > I think that you failed to answer Mr. Thompson's question as to
> > whether or not the default parameters of BC require substantial
> > modification.
> >
> > Slimhart
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