Much is being written these days about objective and subjective trade entry methods. If you are unfamiliar with this I will attempt to explain the difference in this article and provide and example of an objective signal using The RSI Paint Indicator.

What is a subjective trading signal?

Most of us are aware of subjective trading signals because most of us learn from others who are using these signals who learned them from others. For example, the hand drawn trend line. Although there are rules to drawing trend lines, nearly everyone draws them differently. Given the same trading chart 10 traders might select 10 different places to draw their trend lines. Who is to say which is right or wrong?

That is the point, subjective signals like hand drawn trend lines are interpretive. There can be any number of reasons for placing them from spot to spot and it is impossible to prove them right or wrong because they can’t be programmed to be the same each time.

Chart patterns fall into the same category and although we see them and think they tell us something specific there is no statistical data that proves that what they tell us is significant; again because the pattern is not programmable. It tells a story but that is it, the story has many meanings depending on who is telling it. This is true of many of the methods that traders use each day in the market and swear by such as; Elliott Wave, Gann, and Fibonacci.

What is an objective trading signal?

An objective trading signal is algorithmic. It is programmed.

“The acid test for distinguishing an objective from a subjective method is the programmability criterion: A method is objective if an only if it can be implemented as a computer program that produces unambiguous market positions (long, short, or neutral). All the methods that cannot be reduced to such a program are, by default, subjective. David Aronson, Evidence-Based Technical Analysis

The RSI Paint Indicator

The RSI, the Relative Strength Index, when used in conjunction with The RSI Paint Indicator and the 4 RSI Trading Signals is a standalone system that generates a signal that is objective and then allows the trader to decide based on other decision-making parameters whether the signal is a good one or not. These parameters include knowing where and when momentum is most likely to occur in the market. This information can be tracked and reported as frequently as needed based on the time frame of the currency pair(s) being traded.

Knowing whether the signal you are trading is objective or subjective can improve profits and make the trading signal clearer to the trader. Not all objective signals are successful however so research into the type of signal is important and a topic for perhaps another article. You can read more about RSI by reading RSI Fundamentals: Beginning to Advanced or by downloading the free eBook at the link below.



Source by Paul W. Dean