By: Tom Vilord
There are literally hundreds of technical indicators out there and thousands of technical indicators combinations that can be used. But the problem lies on the premise. Since there are lots of technical indicators available at your disposal, you risk yourself of having too much of everything which can lead you with mastering nothing. This begs the question: “can you use too many technical indicators?”
Probably, you have asked the same question too and are trying to find the Holy Grail of combinations that will catapult you to immortality, at least in the trading world. You may test several technical indicators or technical indicators combinations that are suggested by some writings on the internet. But the thing is, there is no single technical indicator combination that is 100% successful. Because if there is, everyone will be using it and everyone will be rich right now. Right?
I am not saying, however, that the internet cannot give you something you can use or the internet is just a virtual world full of crap in terms of information about trading indicators. We cannot deny that the internet has given us the ease of access on several technical indicators and charts, which have made some investors knowledgeable in the field and have actually make others real fortune. What I am saying is that investors should not rely on suggested technical indicator combinations and expect to become successful. What you should do is to learn as much as you can and identify which indicators are suited to your trading style, which in turn, can yield to higher profit or positive curve in the long run.
With that said, you don’t have to use several indicators at once. Experts agree on this. Using several indicators at a time will only create confusion. It will only create conflicting information, which is not good if you want to have certainty in your decision.
A good example is using 7 indicators when deciding on your entry and exit positions. Four of them are telling you to enter a long position but 3 are indicating a future downward movement. While majority of your indicators are giving a green light, the other 3 can become a factor. Statistics may be on your side to pursue the trade but you are more likely to abandon it because you still see the risks.
It does not end there. Using multiple time frames can give you different conflicting information which can become a major factor in your decision. More likely, you end up not trading at all because you are afraid to take a position.
To become successful, you really do not have to have several indicators. This is quite ironic but the most effective indicators are those that have been around the longest. Experts suggest that you stay away from complex set-ups and stick on the basic like MACD (Moving Average Convergence/Divergence), Rate of Change (ROC), Relative Strength Index (RSI), Price and Volume Oscillator, and stochastics.
Even with these examples, you have to identify which indicators are suited to your trading style. Do not overcomplicate things. To become successful, you don’t have to constantly tryout new indicators in order to find the best combination. All you need to do is to use and master few and simple ones.