Which indicators to use, or not to use, for better results?


6 min read

Which indicators of technical analysis should you use (if you want to use it) to get better results? IQ Option offers a large number of technical tools. It is often difficult for beginners to use indicators adequately.

Many professional traders agree that using multiple indicators often creates a source of distraction and can contribute to the loss of their money. According to these traders, the rule is to keep your trading system as simple as possible: two or three indicators at most.

At first glance it might seem obvious that the indicators provide important information on the price trend and, consequently, make the life of the trader a little easier. And in a sense it's true. However, the information that is displayed by all the indicators are actually already present on the price chart. Experts agree that the use of indicators is not to be considered mandatory. That said, each indicator presents the information in a different way, which helps to identify the most "hidden" movements and patterns. Remember that indicators that are not only good or bad are just tools. Their usefulness depends exclusively on your knowledge and your skills.

Consider using up to 3 indicators at a time

Many indicators work very similarly. We take the MACD, the RSI and the Stochastic. Although they are slightly different, their readings overlap in very many cases. Using them all three at the same time can not bring any benefit. In fact, two moving averages can perfectly replace the MACD. The overlapping indicators always generate similar signals and, therefore, can be used to receive confirmations.

Select an indicator from each category to avoid confusion and self-confirming trading systems.

Oscillators. The indicators in this category fluctuate between two lines, generally the lower and upper ends. Oscillators include the RSI, the Stochastic, the Commodity Channel Index (CCI) and the MACD.

Overlap indicators. These indicators are positioned directly on the price chart (unlike the oscillators, which are located below the chart). Bollinger Bands, Parabolic SAR, Moving Averages and Fibonacci Retracements fall into this category.

How do the indicators combine?

The choice of particular indicators depends on your personal trading style, the selected asset and your personal preferences. There are, however, some rules that can help in the creation of a balanced trading system.

You can trade even without any indicator (especially during a strong trend)

As mentioned previously, it is preferable to select an indicator from each category. For example, you can use the MACD to determine the direction and strength of the prevailing trend and then find the optimal entry and exit points with the help of the Bollinger Bands.

Any oscillator can be combined with an overlay indicator. However, some indicators work better than others. It is also possible to use multiple overlapping indicators simultaneously. For example, parabolic SAR is often combined with the moving average. However, it is necessary to keep the trading screen clean and clear, since an overabundance of information tends to distract and lower the overall level of performance. Remember that any combination of indicators can generate false signals and, sooner or later, this will happen. Indicators are simple tools and can not produce a profit by themselves. Your judgment will guide you.

Do not use more than 3 technical analysis indicators and make sure you know the characteristics well. How do they work? What are their goals and limits? What results can be estimated with their use? How often do they generate false signals? By answering these questions, you will be able to get the most benefit from using the indicators.

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This article does not represent an investment advice. Any reference to past movements or price levels is informative and based on external analyzes, we do not provide any guarantee that such movements or levels may reoccur in the future. In accordance with the requirements set by the European Securities and Markets Authority (ESMA), trading with binary and digital options is only available to customers categorized as professional clients.

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Source: IQOption blog 2018-11-07 13:27:34


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