How to Combine Stocks Trading Indicators to come up with a Strategy
Best Combination of Stock Technical Indicators
To come up with the best stocks trading indicator combination for your stocks trading strategy you will need to know about the various different types of stocks indicators & know how you can combine these indicators to create a stocks trading strategy.
Stock technical indicators are used identify stock price trends, analyze momentum of stock price trends so as to try and predict the next likely stock market price movement direction.
Because each stock indicator calculates and interprets stock price moves differently using different methods of calculation stock traders will usually combine two or three stock technical indicators so as to come up with a stock strategy that uses a number of different calculation techniques from different stock indicators so as to generate stock trading signals not from only one stock technical indicator but from 2 or 3 stock indicators and using this strategy a trader will only open a stock trade once all the stock indicators give a stock trading signal in same direction.
A good stock technical indicator combination should include different stock indicators based on the following types of stock indicators:
Stocks Trend Following Technical Indicators
Stocks trend indicators are used to figure out if a stock instrument is moving within a stock trend or not & also to determine the direction of the stock trend.
Trend Following Indicators Stock Indicator Examples: Stock Trendlines, Moving Averages, Bollinger Bands technical indicators
Momentum Indicators
Stocks momentum indicators are used to determine the momentum of the current stock trend - these momentum stock trading indicators are used by stock traders to analyze the strength of the current stock trend so as to determine if a trader should open a stock trade or not based on the momentum of the current stock trend.
Momentum Indicators Stocks Indicator Examples: RSI, ADX, MACD technical indicators
Based on these two stock indicator categories a trader can come up with a stock indicator based stocks trading strategy that will have the following stocks indicators:
Moving Averages Stock Trading Technical IndicatorRSIMACD
By using different stocks trading indicators stock traders will get different information about the stocks trading price movement and thus stocks trading signals generated using this method will have better information about stock price trading signals because the indicators used do not analyze stock trading price in the same manner and instead the technical indicators used analyze stock trading price information differently and therefore using this stock trading strategy generates stocks trading signals using a combination of different stock indicators that use different stock price information to generate trading signals.
For the above stock indicator based stocks trading strategy the Moving averages will be used to define and identify the stock trend while the RSI and MACD indicators will be used to determine the strength of the current stock trend.
If all the three stocks trading indicators give a stock signal in the same direction then a trader can open a stock trade base on the direction of the stock trend & the momentum of the stock trend.
For example a buy stock signal & a sell stock trading signal can be generated when
Buy Trading Signal
- Moving Average indicator is heading upwards
- RSI indicator value is above 50 center line mark
- MACD indicator is above the zero center-line mark
Sell Trading Signal
- Moving Average indicator is heading downward
- RSI indicator value is below 50 center line mark
- MACD indicator is below the zero center line mark
How to Combine Stocks Trading Indicators to come up with a Strategy
