Why Combine Technical Indicators When Trading?

Typically, each technical indicator is effective only in one or several specific market periods. The lagging indicators are often used to identify trends, so they work best when the market is trending. Meanwhile, leading indicators (leading indicators) are often used to detect reversing signals, so they work best during the cumulative or sideways phases of the market.

For this reason, the incorporation of indicators in trading is essential. Combined wisely, the technical indicators will create a comprehensive system, giving you the flexibility to market changes and finding more trading opportunities.

How To Combine Technical Indicators Effectively?

Before building your own trading system, you need to remember that not all technical indicators can be combined. Combining too many indicators with the same function not only causes space wastage on the charts but also complicates market analysis.

Therefore, to be able to combine effectively, you need to understand the functionality of each type of indicator you want to use. Technical indicators are generally classified into two main groups:
  • Trending indicators - best performing during the trend market period.
  • Oscillators - that work best during an accumulative or sideways market.
After defining the functions of the indicators, you can combine the indicators of the two groups above. According to trading experts, the best combination is to use 2 indicators, one of which is in the “trend” group and one in the “fluctuation” group. That will keep your analysis from becoming too complicated.

Here are some common indicator pairs:
Moving Average and Relative Strength Index (RSI)
Bollinger Bands and Stochastic Oscillator
Moving Average Converging Divergence (MACD)

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