Determining Trend Strength And Turning Points The Spearman Indicator For Technical Analysis

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

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