In a perfect world an indicator would perform consistently in every market and for every stock or ETF. The markets aren’t perfect. Knowing how to recognize that a stock or ETF doesn’t cooperate with your indicator can be as important as knowing which ones do.
Our favorite indicator, the MACD crossover, has a couple great examples of where it isn’t effective. A glaring example is on leveraged Index ETFs. Take a look at TQQQ the leveraged bullish ETF that tracks the NASDAQ:
I highlighted a couple crossovers that should indicate a breakout to the upside. In the first example, TQQQ did exactly the opposite. That could be costly. In the second example, it just languished and never turned into anything.
There are other cases where you can see the pattern of the indicator not working and factor that into your trade to accommodate for it. IDRV is a good example.
In this case, the highlighted examples are more premature than they are failures. By using a longer term trade for a LEAP option you can compensate for this tendency and still find potential wins. You also have to know that you may seem some drawdown before the move breaks out and make sure that fits your trading style.
This range locked market we are currently in forces us to really dive deeper into the nuance of the tools we use. It is important to look at why something didn’t work than to just abandon it.
Keep learning and trade wisely,
Market Wealth Daily