Most traders will tell you to stay away from indicators, they think indicators are lagging, it cannot predict what the market will do, this statement is wrong, it is an excuse, the real reason for losing money trading indicators is that you are stuck In the indicator game.
Indicators are derivatives of price, they are just telling you what happened, not what happened! Therefore, no matter how many different combinations of indicators you try, you will never be profitable if you only rely on trading indicators to make decisions.
As shown below:
It can be seen that all three indicators are pointing in the same direction. Does this mean that the market is about to rise? The fact is not, because RSI/CCI/stochastic indicators are all oscillating indicators, they are the same type of indicators, so they all point to the same. So how to use indicators reasonably?
1. Use trading indicators and filter market conditions
Typical representative - moving average
The moving average is a trend-following indicator that can be used to filter market trends, for example, if the price is above the 200MA, the market is in a long-term upward trend (as shown below)
Representative indicator - ATR
ATR (Average True Range) is a measure of market volatility and can be used to identify low or high volatility market conditions
As shown in the figure below, the price works well in a low volatility environment, then you can look for the low point of this range to trade.
2. Use Trading Indicators to Determine Value Areas
The value area is a potential buying or selling area. Naked K traders like to use support and resistance lines, trend lines, etc. to determine it, so how to use indicators to determine it?
Relative Strength Indicator – RSI
RSI is a momentum indicator that measures average profit and loss over a period of time, useful as markets identify areas of value with mean reverting behavior. As shown in the figure below, the RSI indicator fell below 30 within 10 days, and at this time it entered the overbought zone, which means that the price has a "rebound" and continues to rise.
A word of caution: this indicator is not available for all markets.
moving average
The moving average is a multi-purpose indicator, it can be used both to filter market conditions and to identify areas of value, because in a trending market, the price rarely retests previous support and resistance, as shown below, in a healthy trend In the above, the price will find a price area around the 50MA, which means that the price will return.
Note: In a strong trend, the market tends to find a price area around the 20MA
In a weak trend, tend to find a value area around the 200MA.
3. Use indicators to determine entry time
Stochastic
Stochastic is a momentum indicator and when the price crosses 30, it indicates that a bullish momentum is entering at this time and can act as a bullish entry trigger.
When the price breaks below 70, then a bearish trend is intervening and could be a bearish entry trigger. As shown below:
Donchian Passage
Donchian Channel By default he plots the 20 day highs and lows because you can easily identify the highs and lows of the past time, this works great for breakout trading as you can trade when the price is in the lower channel when selling.
Summarize
Indicators are derivatives of prices. They only indicate what has happened, but not what will happen in the future. Therefore, when we choose indicators, we should not trust other people's indicators that they are easy to use, and then use them. Others think they are easy to use. The indicator is for him, not for you.
In addition, do not appear multiple indicators of the same type on the K-line chart, because they indicate the same direction and are likely to cause interference to traders.
The last point, you must understand what your indicator is used for, whether you choose this indicator to find a good entry point, or to filter market conditions, these are things that traders must think clearly before using indicators!
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