Technical Indicators

I get a lot of questions about what indicators are best to use.  I also have talked to beginning traders and even advanced traders that are watching 7 different indicators.  What?  Really?  Seven?  I would go cross eyed and and lose my marbles if I had that many on?

My answer to most everyone that asks me about which indicator to use is focus on price.  If you can learn to trade with price you don't need indicators.  After all indicators are based on price.  So why not learn to read price.

That being said indicators are secondary confirmation.  I's like you are driving 100 miles an hour and you have to confirm that by looking at the speedometer.  Sometimes you don't need to look down to  know you are accelerating.

Price Comes First

Generally as a trader you are trying to determine where the tilt is and what behavior in the market is.  Is it one of panic and fear (sell-offs)?  Is it one of caution as we approach a top (slowing momentum of an uptrend).  What ever it is we as traders have to understand the emotional atmosphere and price is a great reflection of that.

If someone becomes dependent on indicators they can often suffer "paralysis of analysis"  but if one focus on price only you are able to see things a head of what an indicator might tell you.

Technical Indicator Concepts

There are literally hundreds of different indicators but a lot of them do the same thing but in a different way.  But I think that there are two concepts to consider when using indicators.  Divergence and reversal.

Most indicators whether it is the MACD, Stochastics, CCI you name it, will diverge that means the indicator does not agree with the way the price is moving.  When this happens it generally means a change in a trend will occur.   If the price is going up and the indicator is moving down that will indicate a change in trend.  I will talk more  about a specific indicator in the intermediate section that provides a great divergence when it happens.

Reversals at key levels of an indicator can also help to confirm what we are seeing on the price chart.  That might generally be at an overbought or oversold level that many indicators have.

Practice Practice Practice

When I first started out trading one of the things I really loved to do was pull up lots of charts and draw on them.  I wouldn't even have indicators just price and maybe volume.  But I would chart where the trend is and where support or resistance were.  If you can do that you will be able to open up the chart know where the price extremes are for any time period and flourish.

Try it out and you may find you won't need indicators.