GMT |  Tokyo |  London |  New York

Colinearity in Forex Indicators

Posted in Analysis by Lewis Wolfe
Thursday, October 30th, 2008 8:56 AM GMT

forex-mass-production.jpgColinear indicators = indicators originating from identical market indices

So look at RSI and MACD (moving average convergence/divergence) and let’s say they give the same signal – so what? These have both been derived from closing prices, without any other data input.
What they can’t do is truly confirm each other.
If they do produce different signals, then it’s largely entropy and inherent imperfection of the indicators themselves.

Price range over the periods, volume – these need their indicators too, to give a balanced input. Only then do you stand a serious chance of making successful decisions.

Colinearity, fancy word, but simple enough concept to remember – but you’ll often see people holding up 4-5 colinear indicators in a bunch that fooled them with a dodgy signal and plaintively wondering why.

Your toolbox needs some variety…

Leave a Reply