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I'm new to charting and am just wondering what combination of indicators others are using.
My research suggests that you only use one of each type (momentum, trend & volume)
Thanks
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reddog,
I believe it is each person's preference as to what tools they use, but, it is important that only the right tool is used for the job! The user must understand the capabilities and limitations of the tools they choose to use. Don't use a sledgehammer to crack a nut and don't use screwdriver to break up concrete! Each tool has a purpose and a "right time" to be used. Sometimes you might use a concert of indicators, sometimes you may only need one tool from your cache of tools.
Many people try to use multiple indicators in each "type" as they think they will have confirmation of their signals; personally I think this just induces more lag into the system. I have seen traders attempting to use a combination of MACD with Moving Averages; they are just regurgitating the same information, there is no confirmation as the information is the same from both indicators but just happens to be displayed in a different manner. If you built, for example, a momentum indicator that was close to perfect, would it need other confirming indicators? Some will argue they need a second momentum indicator to give the signals when the close-to-perfect indicator is not being perfect, but others argue, how will they know the when the close-to-perfect indicator is not being perfect? If the close-to-perfect momentum indicator worked in any market conditions and was giving a buy signal, would you need a trend indicator signal too before executing the trade? It is the understanding of the tools' performance, capabilities and limitations, and the interaction with capabilities, limitations and aspirations of the user that will mandate when it can be successfully employed in trading.
There have been many books written about trading using a plethora of tools and indicators, although very few books concentrate on identifying the situations when one tool is the right tool for the job. This informaton mainly comes down to knowledge through research and testing, and experience. If you ask a dozen traders what combination of indicators they are using you will get two dozen responses with no commonality; the only similarity will be in the responses that begin, "Well, it depends..."
Hope this helps.
wabbit [:D]
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hey reddog..... not really sure if you should use only 1 of each type..... but it does seem worthwhile to know which group the particular indicator falls into , so as not to overwhelm the chart with 1 class..... your likely familar with stockcharts, they have classed a few for us......
personally, i play with every indicator but usually end up using the standard stoch, macd, ma's, rvi, rsi and such..... irreguardless of which group they fall into....
one thing that does seem to help me is to overlay indicators in different time frames.... in other words ,
and roughly speaking here ,
if i'm watching the 1 hour chart which has rvi(4) , the rvi(16) will be overlayed on the rvi(4)..... the rvi(16) will be roughly comparable to the rvi(4) on the 4 hour chart....
if the 1 hour chart has the stoch(5,3,3), i'll overlay the stoch(20,12,3).... which is again a rough comparison of the 4 hour stoch(5,3,3)....
and so on with other common indicators like macd and such......
the power in this is that when seeing the indicator/signal cross on the lower timeframe we can at a glance see if it's roughly confirmed by the higher time frame..... if the macd shows a positive cross on the 1 hour but clearly shows a downtrend on the 4 hour macd equivalant, i might procede but with caution and lower expectations.....h
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