When Indicators Collide!
11/16/2012 4:56 pm EST
When your indicators are conflicting, which one do you believe? Anne-Marie Baiynd explains what to do when indicators collide.
Most traders use a variety of technical indicators, but what should you do if they are giving you conflicting signals? We are talking today with Ann Marie Baiynd. Ann Marie, that’s a problem that people face on a regular basis. What should we be doing?
It is a problem, and many of us use a lot more than three technical indicators. I have seen a lot of charts where there are seven, eight, nine of them; so the key is to whittle it down to those two or three–if you can manage–and when they are saying different things to you, wait until they are saying all the same thing. If you say to yourself well, my goodness. I will make half as many trades and probably twice as much money, right? You don’t need to get involved when there is arguing about. You want all these guys to agree, because the more they agree, remember, the market is filled with people trading all kinds of things. So, there are a bunch of guys trading the SMI, and a bunch of guys trading the RSI, and a bunch of guys …blah blah blah, right? When they are all trading those things together, the guy who is maybe trading the SMI is not trading the 820 crossover; but when they are all saying the same thing, it means that every single guy has the exact same trigger. And if every single guy has the exact same trigger, it is going to move, and it is going to move with strength; and so give up the so-so trade. Well you know one or three of these are okay. Just give it up. Wait for the one that is going to reward you; because the more you take a trade that rewards you, the more confident you will be about trading and about knowing what to trade. See, the reason self-confidence falls out of the trader is they take the so-so trade and it falls apart and they say oh, what happened right there. If you stop taking the so-so trade, it will build your confidence, and it will build your trading strength.
Let’s talk a little about something you mentioned a moment ago which is sort of paring down the number of indicators that you are using. How do you make that decision?
That’s a very good question. Again, the best thing to do is find the indicators that are most closely related to price. It is as simple as that; and just realize that if you have a lot of technical indicators, several of them are probably telling you the same thing; so look for the one that maybe you like the best. I’ve got three of these guys. They all really are measuring sort of the same thing, but why have three of them? Why just not have one? Well, because three makes us stronger. Not really if you are decide, wow; this one says yes; these two say no, what do I here? Just take one. Realize you don’t have to have all the decisions and all the information to take a trade. You will never be at that space, and many of us come in, and we go no, I want to know, so I am going to put more and more and more on, and more is not better. Be comfortable with a certain level of uncertainty; and the more of these guys that agree, the greater certainty sits in that uncertainty.