How to Choose the Best Technical Analysis Indicator Part I

Before reading further, it's a good idea to read the following post: Best Technical Analysis Indicators.

If you are a stock player, you are confused about which indicators and other technical analysis are best for you, you often change technical systems, then in this post I can advise you on how to choose the best technical analysis indicators. My advice, if you want to determine the best technical analysis indicators, at least there must be:

One leading indicator and one lagging indicator. One leading indicator: to determine faster buy and sell signals. In general, the stochastic indicator is a leading indicator that is quite convenient to use because it consists of the intersection of two lines which makes it easier for you to determine buy and sell signals. One lagging indicator is used to determine price trends, tend to be bullish or tend to be bearish. In general, the moving average and Bollinger band indicators are quite convenient indicators to use as lagging indicators.

One thing you should never forget when you build a technical analysis system, is VOLUME. Volume is a very important indicator to determine the interest of market participants in a stock. High or low volume can be used to indicate whether the stock price will increase or decrease. If you don't understand volume and how to read it, please read How to Read Stock and Forex Volume. The combination of these two indicators plus volume, can provide direction to determine more precise and accurate signals.

I personally prefer to use a combination of leading indicators (stochastic oscillator, RSI or momentum) and lagging indicators (Moving average) and volume. Plus learn candlestick patterns. If you want to learn candlestick patterns, please read: Learn Candlestick Part II. Why do I advise you to use indicators?

The indicator is quite easy to learn, and reading signals through the indicator is also quite simple. In essence, the lagging and leading indicators are indicators that are quite easy to use, especially for beginners.

Then, you ask again: "Sir, is it possible if I predict stock prices mostly using only chart patterns (such as double tops, etc.)?"

** I will discuss the chart pattern in a separate post. The post about chart patterns hasn't been published yet.

If you are a beginner I don't recommend using chart patterns too often. Chart patterns can be more accurate than indicators. However, chart patterns have weaknesses from two sides. First, the patterns formed from chart patterns are numerous. You have to memorize chart patterns one by one. Of course it will be difficult for you to memorize and understand various chart patterns, especially if you are still a beginner.

Second, how to read chart patterns is very subjective. If you read using indicators, the indicator charts have been provided by the software, while reading chart patterns, you have to draw your own line and you have to understand the chart patterns. The problem is, everyone's understanding can be different. I often meet the recommendations of stock analysts who are dominant using chart patterns. Analysts said stock A formed a cup and handle. In fact, in my opinion, the pattern cannot be said to form a cup and handle.

So if you are a beginner, I highly recommend that you learn more about the indicators first. After all, the combination of indicators also produces good signals if you keep practicing. What I'm saying here doesn't mean that if you're a beginner you shouldn't learn chart patterns first. What I don't recommend, if you're a beginner, just use the chart pattern. Understanding chart patterns requires a fairly high flight time. Although learning the indicators that are best for you requires a lot of flying time, the use of chart patterns is actually more complicated.

Brother Heze, if my trading system is suitable, does it mean that my trading system will not change again?

I think your system must have changed. But the foundation and foundation of the system you use will remain the same. Why is that? Because over time, as your trading skills develop, as the dynamics of the stock market change, your system will definitely continue to evolve. That is fair thing.

What's not recommended when you're deciding on the best technical analysis system? To get the answer, please refer to the next post: How to Choose the Best Technical Analysis Indicator Part II.

Gotou Sakurajima A female trader from Japan who now lives in Jakarta, Sakura loves Forex and Stock Trading since moving to Jakarta and Sakura loves to write articles about Trading.