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Top 3 Indicator Combinations
There is a very important golden rule to remember when it comes to combining indictors and that is to never overdo it. Opting for numerous indicators and applying them on the chart is not the defining grounds for improving your results. Instead, such a thing can actually confuse you and bring forward or corroborate wrong signals.
Before we jump into combining indicators, it is crucial for you to understand the differences between them. All indicators can be separated into distinct categories:
- Volume indicators
This class of indicators exhibits the volume of the traded asset. Tracking the volume helps you to see how strong the movement of price might be.
- Momentum indicators (oscillators)
The objective of these momentum indicators is to establish the oversold and overbought levels. They are efficient at finding price reversal points. They are also easy to distinguish from the trend ones since they are generally displayed under the chart.
- Volatility indicators
These indicators exhibit how much the price of the asset is altering in a set duration. The price must be volatile so that the trader can trade it. But high volatility is allied with higher risk.
- Trend indicators
These indicators that follow trends, smooth out the price and follow the trend line of the chart. Trend indicators are typically placed on the chart line and are based on the past performance of the asset and reveal the price trend and its strength.
So, when you are combining indicators it is more ideal if you opt to use indicators from different groups instead of multiple indicators of the same kind. Now, that you know the differences, lets learn about 2 useful indicator combinations that you can apply in trading.
- ATR + Parabolic SAR:
ATR is a quality volatility indicator that measures how volatile the market is but is not capable of showing the direction of the trend. So, when the market is unsound it exhibits trading opportunities. In addition to this ATR can provide a trader help with deciding on setting the stop loss level. The stop loss feature helps traders manage higher risks that are often associated with moments of high volatility.
Now Parabolic SAR is a trend indicator. So, when it is combined with ATR it may help the trader to determine entry points during a trading market simultaneously setting potentially more precise take profit and stop-loss levels.
- RSI + Bollinger Bands:
The RSI is an oscillator or momentum indicator with the standard levels of 70 to 30 displayed on the chart. It is basically a line that fluctuates between the value range of 0 and 100. So, when the line gets closer to 70, the asset is considered overbought. And when the same line approaches 30, it is considered oversold.
Now Bollinger Bands (BB) consists of three lines. One of the lines is the exponential moving average (EMA) and the other two are price channels above and below it. It exhibits the periods of the low and high volatility of the asset. The width between the bands determines the volatility, so if the bands are wide apart, the higher is the volatility and the stronger the movement is.
- SMA + Stochastic:
SMA or the Simple Moving Average is considered a basic tool, but it is capable of smoothing the price noise or fluctuations which can help a trader witness the actual picture of the market direction.
The Stochastic Oscillator shows the probabilities of oversold and overbought levels. It is a leading indicator that offers the indication for the possible price reversals and works well when combined with SMA which is a lagging indicator.
Therefore, combining technical indicators results in a very powerful analysis tool. So, it is important for traders to get a good understanding of ideal combinations. But traders should always remember that there is never a 100% accuracy in signals at all times when it comes to any indicator or combination of indicators. You can check out https://www.iqoptionmag.com/ since they offer more than 70 indicators. Do not forget to try their free demo account for a test run.
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