Tuesday, April 5, 2011

Trading Indicators: Too Much Is Not A Good Thing

By Carlos Alberto

There are masses of technical signals out there and thousands of technical signals combos that may be used. But the issue lies on the grounds. Since there are a good number of technical signals available at your disposal, you risk yourself of having too much of everything which can lead you with getting a handle on nothing. This doesn't answer the question : "are you able to use too many technical indicators?"

Possibly , you have asked the same question too and are endeavoring to find the grail of mixes which will catapult you to immortality, at least in the trading world. You'll test a few technical signals or technical signals mixes that are recommended by some papers on the web. But the thing is, there's no single technical indicator mix that's one hundred pc successful. Because if there is, everybody will be employing it and everybody will be rich at this time. 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.

Having said that, you do not have to use a couple of signals right now. Pros agree on this. Using a couple of indicators at a time will only create bafflement. It'll only create confused claims, which isn't good if you'd like to have certainty in your call.

An excellent example is using seven signals when deciding on your exit and entry positions. Four of them are letting you know to enter a long position but three are indicating a future downward movement. While majority of your signals are giving a green light, the other three can become an element. Statistical data might be on your side to follow the trade but you are likelier to desert it as you still see the risks .

It doesn't end there. Using multiple time frames can provide you with different clashing info which can become a serious factor in your call. Much more likely, you finish up not trading at all as you are scared to take a position.

To be successful, you actually do not need to have one or two signals. This is sort of ironic but the most efficient signals are those that've been round the longest. Mavens suggest that you avoid complicated set-ups and stick on the basic like MACD ( Moving Average Convergence / Deflection ), 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.

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