Easy access to data and charting software has contributed to information overload for many investors. Some investors will spend time looking for the perfect chart while other investors will review charts that really contain nothing of value.#-ad_banner-#

Many of the charts we see are useless. And although we don’t believe there is a perfect chart that will identify every market turning point in advance, we find there are some charts that can better help investors understand what to do in the market.

It is important to remember that successful investing is not easy. It requires an edge, which can be defined as a unique and repeatable insight into the behavior of markets. To succeed, you will need to understand what your edge is, and a true edge in the markets will not include information that is widely available.

You will not find an edge simply by looking at the price-to-earnings (P/E) ratio for a stock or spotting a buy signal with a widely followed technical indicator like stochastics. Old traders summarize this problem with a memorable saying: “To know what everyone knows is to know nothing.”

Rather than spending time reviewing what everyone knows, it can pay to look at some charts not many people are paying attention to.

One indicator few people follow is the Income Trader Volatility (ITV) indicator. ITV is similar to the VIX, but while VIX only measures volatility for the S&P 500 Index, ITV measures volatility for a specific stock or ETF.

The monthly chart of iShares Russell 2000 (NYSE: IWM) includes ITV and its 20-week moving average (MA). This indicator is on a sell signal when volatility is high and ITV is above its moving average. In the past, ITV has highlighted when we are in a bull or bear market. With ITV currently below its MA, we are in a bull market.

This is one of the charts we think will be among the two most important ones to follow in 2014. When ITV moves above its 20-week MA, we will have an indication that we are in a bear market. Until that happens, it should pay to stay invested on the long side.

IWM is shown because small caps tend to outperform in bull and bear markets. They are more volatile than large-cap stocks, and because they will often turn down before large caps, it is important to protect wealth when small caps turn bearish.

The second chart we will be watching is a broad economic indicator, the ISM Manufacturing New Orders Index. This is one of the few economic indicators that offer insight into the stock market. Because most economic indicators follow the stock market and rarely warn of problems before they occur, few investors follow them closely. When few people follow a reliable indicator, there tends to be more value in the indicator.

The chart below shows the one-year rate of change in both the ISM new orders index (black line) and the S&P 500 (green line).

As long as the new orders index is expanding, it is unlikely that we will see a sustained bear market in stocks. The one-year rate of change in new orders has generally turned negative before bear markets begin.

The next chart shows all available history of this indicator, going back to 1957, and demonstrates that stock prices and new orders tend to move together.

Until the economy turns down (as indicated by a drop in the new orders index) or the volatility of small-cap stocks increases and the ITV of IWM rises above its 20-week MA, we are in a bull market. These indicators will not forecast the end of the bull market. However, they will give signals after the top is in place. Their value will be in helping us avoid the devastating losses that can occur in bear markets.

Follow charts of less well-known indicators that work, like ITV or ISM New Orders, to help identify the direction of the major market trend. Long-term investors should follow monthly charts and ignore the intraday price action since those signals are not actionable for long-term investors.

This article was originally published at ProfitableTrading.com:
The 2 Most Important Charts to Watch for the Year Ahead

P.S. Amber regularly uses the ITV indicator inIncome Trader when she searches for the best options plays each week. A testament to the power of this indicator is her track record — all 33 of her closed positions are winners. Even more impressive, Amber’s Instant Income trades generate an average of 8.6% every 48 days. Click here to learn more.