Whenever I post chart, invariably I get questions on what indicator do you use. Now long time readers know, there are no conventional indicators I use. Now there are many traders who swear by their indicator. Lot of time they believe in the indicator rationally or irrationally and it works. Indicators are much like placebos in medicine.
I have studied and thought about indicator a lot. Basically indicators are of three types- lagging, leading, and hybrid. Lagging indicators lag the price move. Almost all lagging indicators are derived by averaging series of values. All such average contain lag. SMA, EMA, Adaptive Moving Averages, and various other methods of deriving averages ultimately have lag.
Leading indicators are basically variation of Rate of Change. Leading indicator show acceleration and hence are called momentum indicator ( stochastics and many dozen other variations with different names of it are all leading indicator) The central hypothesis in such indicator is that trend decelerate before it can reverse. So divergence is what you look for in such indicator. The problem is many time the trend decelerate and instead of reversing it accelerates.So they tend to work in range bound markets, but are mostly useless in trending market.
Hybrid indicators like MACD are basically used to overcome problem with both lagging and leading indicator.
Then there are "belief" indicators like Gann, Fibonacci and several mystical variations of them. If you believe in them they work. If you believe in voodoo doctor voodoo medicine works.
As against all these indicator, what I look for is rate of change from a pivot low. The pivot might be 260 days low, or 65 days low or one month low. The advantage is it gives you absolute value. You can compare stocks. A stock having gone up 1087% in 260 days (FRPT) is different from a stock that is up 20% from the 260 days low. The value allows you to rank your stock and select. So faced with a 4% breakout or Episodic Pivot you can select the one which is up 100% plus or the other which is up 20% over same period of time. It is very simple and allows you to separate strongly trending stocks from non trending stocks.
The other problem with the way indicators are used by most traders is, they have absolutely no idea about how they are calculated. 90% of the traders who use MACD have no idea how it is derived. So there is often temptation to add more indicator. Ultimate result is an indicator soup.