Technical indicators are a tool used by many active traders in all types of markets. These tools are an excellent method for locating high-probability set-ups for profitable trades. With hundreds of different indicators to choose from it’s common to use multiple indicators for trading, but without a proper understanding of technical indicators it’s possible to use them incorrectly.
This article will inform you how to trade effectively using multiple indicators.
Using Multiple Indicators in Your Trading
The first thing you’ll want to consider when using multiple indicators for trading is the type of indicators being used. Remember that indicators are simply visual representations of price or volume information for an asset. The indicators don’t tell you when to buy and sell, rather the trader uses the indicator to help them identify high probability entry and exit points that work with their own trading style. There are four basic types of indicators for volatility, momentum, trend and volume.
Once you know the basic types of technical indicators you have to be careful how you combine them. Avoiding duplication in the types of multiple indicators is crucial if you want to avoid misleading redundant signals. If you apply three or four of the same type of indicator all you’ll do is make it more difficult to see the true picture of market activity.
Instead you should use complementary indicators that work well together. One example of this would be to use a trend indicator such as a moving average or ADX along with a momentum indicator such as MACD or stochastic oscillator. When you use two different types of indicators you get different information from each, and if they confirm each other it gives a valid buy or sell signal.
Remember that technical indicators and their analysis is a probability scenario. They can tell you when the probability of something occurring is higher or lower, but they will never provide a guarantee of any specific market action. Using multiple indicators can help increase these probabilities, but only when they are combined correctly. Using indicators incorrectly will simply confuse the trader and provide an inaccurate picture of market forces, but those who use multiple indicators correctly can more accurately locate setups that have a high chance of success, and give themselves an edge in the markets.