by Dan Valcu, CFTe
This indicator is a very old statistical tool that even to this day helps determine trend strength and turning points. Here’s how to apply it to your trading.
Technical analysis can be considered both a science and an art; patterns and chart reading represent the artistic component, while technical indicators help us analytically understand trend strength, buy/sell pressure, and divergences. There are perhaps thousands of technical indicators, but few seem to deliver real analytical power and differentiation in this increasingly crowded landscape, especially since many can be perceived simply as intellectual exercises that produce little bottom-line impact.
To narrow down this set of tools, statistics offer a great source of established knowledge for those who want to focus on more tangible and useful indicators. For instance, the tried-and-tested Z-score has become a classic in both statistics and technical analysis.
In this article we will discuss an established concept in statistics originally proposed in 1904, with potential for use in technical analysis: the Spearman’s rank correlation coefficient, also known as the Spearman indicator. Article extract courtesy Stocks & Commodities magazine
The AIQ code for the Qstick and the Psychological Indicators as mentioned in Dan Valcu’s article, “The Spearman Indicator for Technical Analysis”available from TradersEdgeSystems courtesy of Rich Denning
English