subject: Don't Trust Tecnical Indicators Blindly! [print this page] Author: Ahmad Hassam
The number of technical indicators that are now available in technical analysis is huge and large. Now every trader narrows down the list and in the end only trades with two or three technical indicators most of the time. These two or three technical indicators give them a certain comfort level in making trading decisions.The truth about indicators is that they can only analyze historical data. Their effectiveness is therefore limited and sometimes very misleading. What you need to learn is the master a few technical indicators in such a way that you know their strengths and weaknesses in depth. What this means is that you can interpret the trading signals and by looking at the market, know whether the trading signal generated by the technical indicator is relevant or not. We can divide technical indicators into the following broad categories:Average Based Indicators: Average based technical indicators are the most simple to use. These average based indicators are widely used by traders in almost all markets whether it be stocks, forex, futures, options, commodities and others. The average is calculated on the past data depending on the time frame chosen by the trader. This is a typical lagging indicator that trails the market. This indicator cannot look ahead and anticipate. So, you need to use it in conjunction with other indicators. A combination of lagging and leading indicators can give highly effective signals. But always keep this in mind, there will always be some room for error with these indicators.Fibonacci Based Technical Indicators: Fibonacci based Technical Indicators are truly leading indicators and can effectively anticipate future price movements. Experienced traders heavily depend on these indicators as it helps them to anticipate other trader's intentions. Market are overbought or oversold due to humans trying to trade their emotions. However, most traders use Fibonacci indicators as tools in conjunction with other indicators.Trend Based Indicators: You can draw a simple trend line by connecting the high highs or the low lows. This is one form of a simple technical indicator. However, constructing a trend wall can be a much superior indicator as compared to the trend lines.Chart Patterns: There a number of chart patterns like the reactangles, triangles, flags, parallelograms and other that are also used as indicators. Most of them are however inaccurate when used solely. You need to learn how to use them in conjunction with other indicators if you want to rely on them in your trading decisions.Divergence Indicators; Divergence indicators like the MACD ( Moving Average Convergence Divergence) Indicator are highly popular with the traders.Learn technical analysis and master these indicators if you really want to become a master trader. Most of these indicators when used with caution can give winning trades. Combination of lagging and leading indicators is the best! About the Author:
Mr. Ahmad Hassam has done Masters from Harvard. Try this 1500 pips Strignano's Forex Signal Service and know what is the Secret of the 7 Bridges and the Setti Ponti System. Learn forex trading from Tom Strignano. an EX CHIEF CURRENCY TRADER, a real pro and start trading like pros! Learn Fibonacci Retracement!
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