Incredible Charts Stock Market Charting Software. Home Site Map About Us Privacy Policy Advertise (pdf) Contact Us
 
 
sitesearch

Indicator Basics

Compare Stocks/Indices

Moving Average Types

Moving Average Systems

Moving Average Oscillators

Trend Indicators

Momentum Oscillators

Money Flow

Volume Indicators

Trailing Stops

Volatility Indicators


Indicator Guide > Indicator Basics > Using Indicators
Education > Indicator Basics > Using Indicators

Indicator Basics: How To Use Technical Indicators

Searching For The Holy Grail

Most technical indicators highlight a particular aspect of price or volume behavior. Newcomers often attach mystical significance to their favorite indicators, but none are infallible. Technical indicators are great for stock-screening, but, if possible, base final decisions on the price chart.

Keep It Simple

Select a small number of indicators (2 or 3) and use them to confirm signals from each other.

Know Your Indicators

Study their behavior until you know them well. Indicators are like a carpenter's tools: skilled use can produce excellent results, unskilled use may lead to injury.

Use Contrasting Indicators

Select indicators that complement each other and are not based on the same data. For example, three indicators based on closing price will tend to confirm each other; while indicators based respectively on closing price, volume and trading range will often conflict and are therefore more reliable when they do confirm each other.

No one indicator is suited to all market conditions. Trend indicators lose money during a ranging market, as fluctuations in a narrow price range whipsaw traders in and out of positions. In a trending market, momentum oscillators give exit signals too early and should only be used to confirm trend indicators.

Trend Indicators

Use a trend indicator in a longer time frame than the cycle being traded (e.g. if trading the secondary cycle, use a 100-day exponential moving average to indicate the direction of the primary trend).

The Trend Is Your Friend

Only trade in the direction of the trend as signaled by the moving average.



Visit us on:

30-Day Free Trial

Incredible Charts Pro 6
Free Download
Windows  Mac  Linux

My Account

My Account Login

What's New


 
Top of Page