Gold Rally is in Play – Now What? Experienced Forex traders often look to the price of gold, even though they might never trade the precious commodity. They do this because gold is often a good indicator as to the general sentiment that the trading community has toward the U.S. dollar. Right now, the sentiment […]
Using Indicators the Right Way
Trading indicators can be very valuable toward helping you make money in any market. There is definitely such a thing as using too many or too few, and if this is the case, those valuable results will be minimized or even completely negated. In actuality, there are dozens and dozens of different technical indicators out there, but many of them actually measure the exact same thing–albeit in different manners. For the hundred plus indicators out there, there are really only four things that are typically measured: momentum, trend, volatility, and volume. Using five or six different indicators to measure just one of these things is a waste of time and effort on your part. There are smarter ways to use your time, and this will only lead to you making a higher profit.
Still, using multiple indicators is always a good idea. You just don’t want to be redundant. If you use a few indicators to measure the same thing just to double check yourself, you’re probably over thinking things. This is often referred to as analysis paralysis and will just overwhelm you into either not making the right decision or even not making a decision at all. Avoid this. But if you want to use more than one technical indicator, make sure that you are measuring different things. For example, measuring trend along with volatility can be a good pair of things to use. The trend will help you solidify the direction that prices are moving in while volatility will help you to figure out whether or not there is a chance that prices will change up without warning. When used in conjunction with each other, they can enhance each other’s value.
The best approach for your use of indicators is to combine different families of indicator. Technical indicators are just one family. There are also fundamental, sentimental, and news indicators that can have huge value when it comes to making a profit. Combining two or three of these can give you even better results, especially if you are an expert in the asset that you’re looking at. For example, looking at technical indicators and monitoring the news will let you know when a stock, currency, or something else is in a good position to move a lot based upon a small piece of news. As you can see, one indicator on its own can work well, but when you use two or more, seemingly unimportant things can lead to big changes. Using this information right can grow your trading account.
There is a downside to this, and that is the fact that you will be dealing with a large amount of information, and it can become easy to get confused or overwhelmed with the processing of so much info. You need to be organized and learn how to deal with a lot of things quickly and efficiently. Some traders like to use multiple screens for this, and that is a very viable solution to organization. Using two or three monitors at your computer station can let you look at more info in a single glance, and it becomes a lot easier to compartmentalize info and organize it in a way that allows you to better use it. One screen for charts and technical analysis is great, while you can use another one to follow news feeds and execute trades from. If this is something you are comfortable doing and can easily afford, this is a great way to not let yourself become paralyzed with the thought of having too many things to look at and analyze.
Basically, it comes down to what works best for you. Some styles of trading work better than others for certain individuals, and this means different indicators. Find out what works best for you style-wise, and then organize yourself from there.