Charts and indicatorsUpdated 2 min readBy the FXNOD team
How many indicators should you use?
Two or three indicators are enough for most traders, provided each measures something different: one for trend, one for momentum, and perhaps one for volatility. More indicators do not add information, because all of them are calculated from the same prices. They add conflicting signals, slower decisions and a false sense of confirmation.
Indicators come in families
| Family | Measures | Examples |
|---|---|---|
| Trend | Direction over a period | Moving averages, MACD |
| Momentum | Speed and exhaustion of moves | RSI, Stochastic |
| Volatility | Size of movement | ATR, Bollinger Bands |
| Volume | Participation, where real volume exists | Volume, OBV |
The duplicate problem
RSI and Stochastic answer nearly the same question, and so do two moving averages of similar length. When three momentum indicators agree, you have one opinion stated three times. It feels like confirmation and adds nothing. Pick one from each family you need.
A test for every indicator on your chart
What does it measure?
If you cannot say in a sentence, remove it.
What decision does it change?
If you would take the same trade without it, remove it.
Is it a duplicate?
If another tool answers the same question, keep one.
Can you see the price?
If the chart is hard to read, you have too many.
A sensible minimum
- One moving average for the trend.
- One oscillator for momentum.
- ATR for stops and position size.
- Horizontal levels drawn by hand.
What professionals do
Experienced discretionary traders tend towards fewer tools over time, and many use a nearly bare chart. Systematic traders may use many inputs, but each is tested for whether it adds anything the others do not. Neither group piles indicators on in the hope that agreement means certainty.
In a bot
In Bot Forge, when indicators decide the side, each trade takes the side they agree on and the bot waits when they disagree. Every indicator you add therefore makes the bot trade less often. That may be what you want, and it is a matter of pacing, not of accuracy.
Questions people ask
- Is it bad to use too many indicators?
- Yes. They are built from the same prices, so extra ones mostly repeat each other and slow your decisions.
- Which indicator is best?
- None is best. Choose by what you need to measure: trend, momentum or volatility.
- Can I trade with no indicators?
- Yes. Many traders use price, structure and levels alone.
Put it on a chart
Trade Pilot's chart has moving averages, RSI and Bollinger Bands, and a bot in Bot Forge can use indicators to choose its side. Try both on your Deriv demo account.
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