What technical analysis indicators should you use (if any) in order to get better results? In terms of indicators, IQ Option has a lot to offer. It is, therefore, hard, especially for novice traders, to choose indicators that suit their trading strategy and use them properly.
A lot of professional traders agree that overabundance of indicators is likely to distract you and make you lose money. According to them, the rule is to keep your trading system simple — two to three indicators maximum, if any.
It may seem obvious that indicators provide an insight into the price action and, therefore, make the life of a trader easier. And in a way they do. Yet, the information that gets visualized by all indicators is already present on the price chart. Experts agree that the use of indicators is not mandatory. That being said, indicators represent the information differently, which can help you spot a subtle move or a pattern. Just remember that indicators are neither good nor bad — they are mere tools. Their usefulness will solely depend on your knowledge and skill.
A lot of indicators work in a very similar fashion. Take MACD, RSI and Stochastic. Although slightly different, their readings overlap in a lot of cases. Having all three active is not going to make you any good. In fact, two moving averages can completely replace the MACD. Overlapping indicators will always return similar signals and cannot, therefore, be used as a confirmation for each other.
Consider picking one indicator from each category to avoid clumsiness and self-confirming trading systems.
Oscillators. Indicators that belong to this group fluctuate between two lines, usually with upper and lower boundaries. Oscillators include the RSI, Stochastics, Commodity Channel Index (CCI), MACD and other.
Overlays. These indicators are placed directly on the price chart (unlike oscillators that are situated below). Bollinger Bands, Parabolic SAR, Moving Averages, Fibonacci Retracements and many more fall into this category.
How to combine indicators?
The choice of particular indicators will depend on your trading style, the asset you trade and your personal preferences. There are, however, certain rules that can help you create a balanced trading system.
As mentioned above, you might consider choosing one indicator from each category. For example, one may use MACD to determine the direction and strength of the prevailing trend and then find optimal entry/exit points with the help of Bollinger Bands.
Any oscillator can be combined with any overlay. However, certain combinations work better than others. It is still possible to use more than one overlay simultaneously. Say, Parabolic SAR is usually combined with a moving average. It is necessary, though, to keep the trading screen clean and tidy, as overabundance of information will likely distract you and lower your overall performance. Note that any combination of indicators can and will provide false signals sooner or later. Indicators are just tools and cannot trade all by themselves. Your judgement should guide you.
The bottom line is: use not more than 3 technical analysis tools and know your indicators. How do they work? What is their purpose and limitations? What kind of results can be expected when working with them? How often do they provide false signals? By answering these questions, you will be able to use any indicator more productively.
