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Best Trading Indicator of All Time – The Debate Begins

If you could only use one indicator for the rest of your life, what would it be? How do you personally use it?

JC Parets, All Star Charts: Price. It’s the only thing that we can count on as factual. And since we know that market returns are not random, but in fact asset price trend, that’s why technical analysis works. Because we’re looking for trends. At the end of the day, price is the only thing that pays anyone. We only get paid to sell things at higher prices than where we buy them. So if that’s the only way to get paid, then why wouldn’t our analysis both begin and end with the study of price? Seems like common sense to me.

Steve Reitmeister (Reity), StockNews.com: As a primarily fundamental investor, I can’t believe I am saying this…but if I could only use one indicator for investing, it would have to be something that is really good at telling if market is bullish/bearish. And that would have to be the 200-day moving average for the S&P 500, which most people agree is the best long-term trend line. If above, then easy to be bullish focusing on the best stocks according to the POWR Ratings. And if under, then best to expect further downside leading to more conservative investing approach, including inverse ETFs to profit on the way down.

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Tim Biggam, StockNews.com: My one indicator would be the VIX, specifically countertrend positions at extremes. Buying the market (SPY) if VIX hits highs and softens, then selling the market if it hits lows and strengthens. Worked pretty well over past year for sure.

Tim Melvin, Investors Alley: High-yield credit spreads. It measures fear and greed… the higher it is the more fear. The 10-year mean right now is about 6% or so. Above the mean, be a buyer… below it, be more cautious and avoid buying. Extremely low readings below about 3.5% indicate extreme levels of complacency and greed… time to sell.

Jay Soloff, Investors Alley: If I could only use one indicator for the rest of my life it would be related to the VIX — the shape of the VIX term structure. Term structures in general can give a decent sense of sentiment. With the VIX, when the shape is sloping up to the right, options selling programs are doing their thing, pushing down front-month implied volatility (which is normally the case), and there’s not as much fear in the market. When it’s not like that (sloping down to the right), that’s when you have to worry.

Steve Smith, WealthPop: Applying a moving average — whether it be 20, 50, or 200 — gives a good read into supply and demand of the underlying asset and helps identify trends. Final answer: The 50-day moving average applied to an index or individual stock.