After going through so many different technical analysis indicator in my blog, I find that most of my readers are facing a problem. Most of them do not know which technical analysis indicator to use in their trading and that is what I am going to talk about in this post today.
Indeed, there are a wide variety of forex indicators available in our trading platform and this makes the selection very hard and complicated. I have been receiving emails from readers asking me for the best combination of forex indicators to use, but the fact is there is no best combination that works for all trading strategies. Every trading strategy has its own best combination of tools and it also depends a lot on the trader himself.
Therefore I am going to share with you how I usually choose my indicators so that you can also do the same for yourself.
Below are how to choose your technical analysis indicator for your trading style
1) Objective: Every indicator has its own special feature and when you are choosing which one to use, you should be very clear about your objective. Let’s say that you are looking for something to help you identify whether the market is consolidating or trending, then the Bollinger Bands is what you are looking for as the width of the band will be able to tell you the answer.
If you are looking for something to help you in your entry decision when you are scalping the market, you may need the help of parabolic SAR. As I have said earlier on, you need different tools for different strategy.
2) Variety: Some indicators like the Relative Strength Index (RSI), Stochastic and Commodity Channel Index (CCI) are oscillating in nature. They are able to tell you whether the market is overbought or oversold. Therefore there is no point in having a RSI and a CCI together in your chart as they are of the same nature.
I usually have a mix of indicators with different ability so that I can tell more things from them when I am doing my analysis.
3) Quantity: Some traders tend to use a lot of indicators as they believe that it can help them to have a better understanding of the market. In contrast, these traders usually have difficulties in getting into a trade as it is very hard for all the indicators to give them the same entry signal at the same time.
Therefore I usually stick to a maximum of 3 indicators for my trading and once I am able to get the same signal from them, I will enter my trade.
I hope that this article can help you to have an understanding on how to choose your technical analysis indicator. If you have anything in mind or any questions to ask, do feel free to comment below.