What technical analysis indicators should you use (if any) in order to get better results? In terms of indicators, IQ Option has so much to offer. It is, therefore, hard, especially for novice traders, to choose indicators that suit their trading strategy and use them in a proper way.
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 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.
Pick 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 more.
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 should consider choosing one indicator from each category. For example, you 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 mere tools and cannot produce profit all by themselves. Your judgement should guide you.
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.
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Dear sir,
Where I get poperr knowledge about trading tools
Thanks for asking, dear Amarendra! 🙂
Your success depends on your skills and patience, your chosen trading patterns, and the amount you are able to invest. You can start by watching our training videos (https://iqcc.io/en/tutorials) first, so you can make more informed transactions. Beginning traders can try out their skills and practise on the practice account.
We wish you best of luck!
Since you said that any combination of indicators can and will provide false signals sooner or later, So pls can you help indicate specify the 2 other Indicators to be combined Bollinger Bands to produce a good profitable signals
We cannot win all the time. Money from losing trades keeps the market alive. If we all win all the time the market will crash, therefore winners won’t profit either. There is no perfect indicator, and no two same trader would interpret an indicator’s signal at a very similar manner. Using the same indicator, placing a deal at the same time, but two different decision. One would buy, the other would sell. If in any case, that an indicator would perfectly give you the right signal, we would kill the goose that lay the golden egg.
Hi Jeffrey J. Ancheta,
Whoa!!!! I never knew until now the exact source of the money in the market. Thanks for the statement. I now realize that trading is indeed a zero sum game!
So as traders get intelligent day by day, more stupid traders (novices, tyros, beginners, call ’em whatever you want) are needed to keep the system alive…
And if that doesn’t happen, the less intelligent traders would start losing to the more intelligent flock! Sounds like a Ponzi scheme to me though 😀
Hello, Austine!
Thank you for your interest! We will certainly consider a new article about Bollinger Bands combinations.
Thanks for your stay with us. Have a lovely weekend!