Wednesday, 8 April 2015

Which Technical Indicators To Use?

I will be straight up honest with you. I don't use much technical indicators when I am deciding on which trade to take.

When I started out, I tried to develop the ultimate strategy that would have a high success rate. I went about studying different indicators, their purpose and limitations, and which one had the most success in determining the direction of the price.

But I found myself having a chart that was ineffective in telling me any useful information. Odd isn't it? One would expect more indicators to give more information, but instead, it seems to have diminishing returns after a certain point.

Let me show you an example.

Singtel (Z74) Daily Chart 

I've included some of the more commonly used indicators such as RSI, MAC, ATR, Moving Averages, Bollinger Bands and Ichimoku Kinko Hyo. Okay, maybe the last one isn't that commonly used. I was just trying to prove a point!

I used to look at charts like the one above and the problem was that I kept getting mixed signals. I kept changing my strategy to try to fit certain indicators into my plan only to be conflicted with another indicator that was telling me otherwise. 

This is what my charts currently look like. I use 2 indicators, mainly ATR (Average True Range) and Volume. The chart is cleaner, it is easier for me to focus on the price action rather than having a whole load of information which doesn't allow me to make a decision. 

Of course, these indicators are suited for my strategy and can differ from person to person. The point here is not to use the indicators that I use, but to stick to a few and be disciplined about it.

I will write another post as to why I use specifically ATR and Volume in another post.

As always, happy trading.



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