Learn How to Use Indicators Correctly: Have you ever found yourself applying multiple indicators to your chart, the more the better, waiting for the result to be positive? Have you ever wondered if you are using the right combination of indicators?
If you’re still confused about what each indicator is for, how they’re used, or when it’s best to apply one or the other, this article is for you. Let’s look at it step by step making it as easy as possible for you to start using technical analysis on your charts right away.
Why you need them
A technical indicator can be applied to the chart of an asset to analyze previous market movements and define the pattern. The essence of any indicator is a mathematical calculation whose result allows traders to make predictions about future price progression.
Technical indicators are great for short-term traders. Since they do not involve fundamental business analysis (profits, results, etc.), they are not useful for long-term investors. It is important to understand how indicators are classified and how different types are used correctly. An accurate implication of indicators helps to make a more accurate prediction of price movement. In general, it is essential to understand exactly what each indicator represents and what you should take into consideration when applying them.
They determine the trend by softening the volatility that occurs naturally on the charts. They are usually based on past chart activity and some, such as the MACD, for example, can also measure the strength of the trend.
Trend indicators are great for determining the direction of the trend and deciding when to open a trade. At the moment, you can find indicators such as Moving Average, Bollinger Bands, Aligator, MACD, Parabolic SAR and Ichimoku Cloud on the platform. It is easy to distinguish trend indicators, as most of them show themselves on the chart, while oscillators appear below the chart.
These indicators determine overbought and oversold conditions in the short term. They are useful for finding pivot points, since the price does not remain in the overbought or oversold areas for a long time.
Oscillators are not as effective in trend markets and are best used when the chart does not show a strong trend in any direction. They generate entry and exit points at times when the asset price moves too far from its usual range. The most popular oscillators include the RSI, Stochastic and Amazing Oscillator.
How to combine it?
To successfully combine them, you need to define the type of indicator you are going to use. Why? By using many indicators of the same type, it will simply lead to duplicate signals – in this case, more is definitely worse.
The rule you should remember is that an optimal combination of indicators means that they complement each other and do not repeat each other. Using more than 3-4 indicators on the chart may be unnecessary, choose less, but choose better.
You can also combine your indicators with a fundamental analysis to complete the picture.