Knowing which indicators to use and the best combination of technical indicators can dramatically improve your chart reading skills. Using incorrect technical indicators can lead to inaccurate interpretation of prices and consequently poor decisions.

Our trading guide strategies team has carefully selected all technical indicators so that they can provide the best performance for each individual trading strategy we create.

If you are the type of price action trader who only uses bare charts, feel free to check out our step-by-step guide to the final chart standard.

 

 

Technical indicators make it easier to identify current price trends and predict where prices will move in the future. By developing effective technical analysis strategies, you can increase the amount you earn each day of trading.

Although all technical indicators are useful, each has its own set of weaknesses. If you only use a single indicator to monitor the market, there may be some price trends (or risks) that you don’t notice.

By combining multiple technical indicators into a single trading strategy, you can limit your risk while still getting strong returns. Below we will explain how you can create a strategy with different indicators.

A multi-indicator strategy should avoid being redundant and should use the best combination of trading indicators in a meaningful way. We also have training in the average true distance indicator.

A multi-indicator strategy runs the risk of becoming redundant because traders often use indicators that show the same type of information. To avoid falling into this trading mistake, you need to understand that technical indicators can be classified into three groups as follows:

  1. With the indicators  for monitoring trends you can determine if an asset is overbought or oversold. Many trend indicators, such as the Bollinger Bands, attempt to create a clear ‘channel’. A clear channel informs you whether prices are close to bursting or returning to normal.
  2. Momentum indicators  such as the Relative Strength Index (RSI) allow you to determine the direction and strength of a current price trend. As an asset begins to gain momentum, opening a new position becomes less risky. Analyzing the moving average indicators also helps to evaluate the moment.
  3. Volumes indicators help traders to identify the (strong) relationship between price and volume. Increases in trading volume almost always lead to an increase in price. However, these events do not always occur at the same time, which is why volume indicators are good for advanced forecasts. On Balance Volume (OBV) and cash flow are two of the most useful volume indicators.

As you can see, while these categories of indicators are trying to determine the same thing – whether prices are about to rise, fall or remain stable, the angle each presents is unique. Observing the market from different angles can help you develop a more accurate, realistic and actionable perspective.

Essentially, if you trade with a multi-indicator strategy that uses the RSI indicator, the MACD indicator and the stochastic indicator, you are basically using three types of technical indicators that belong to the same category.

All of these are momentum indicators that will show you the same kind of information in one way or another. In the figure above, you can see how all the indicators are tracking simultaneously.

This is not good!

The problem with using inappropriate technical indicators is that you can actually think that the trading signals are stronger if all the indicators are pointing in the same direction.

Correcting information that emphasizes the use of indicators belonging to the same group is quite simple. Avoid using technical indicators that display the same type of information. The best strategy for different indicators combines indicators that show a different kind of information.

Multiple Indicators of the Best Strategy

Now comes the fun part.

In the future we will indicate which indicators to use for the best strategy in various indicators.

We will use a momentum indicator, a trend monitoring indicator and a volume indicator that support and complement each other.

RSI Momentum Indicator

We will not spend time explaining how RSI is planned because we live in the computer age and they do the work automatically for us.

The Relative Strength Index is a momentum indicator and a leading indicator at the same time. Many traders like the RSI indicator because it is easy to use.

We use the RSI indicator to identify possible oversold and oversold conditions in the market.

Next, we will call our second indicator.

Watch below…

OBV – Volume indicator

The second indicator used for our strategy is the OBV indicator.

The OBV indicator is based on the idea that volume and price activity are equally important. In this sense, OBV combines price and volume to show the total amount of funds entering and leaving the market.

The screenshot above shows what the graphics configuration looks like if you followed the instructions above.

The main idea behind the On Balance Volume indicator is that the market price should go where the volume flow goes.

We just have to mention our last technical indicator that will complete the multi-indicator strategy.

Ichimoku Kinko Hyo (Ichimoku Cloud)

The Ichimoku cloud is another popular trend indicator. Ichimoku Kinko Hyo draws different lines on a chart that facilitate the identification of future instances of strong support or resistance.

In the indicator chart there is a blue line (Kijun Sen), a red line (Tenkan Sen), a green line (Chikou Span) and a red/green band wrapped (Senou Span). To get an accurate reading of the movement, each of these lines must be counted.

The blue line (the baseline) will represent the average of the highs and lows of the past 26 trading periods. Similarly, the red line (the pivot line) will plot the average of the highest and lowest lows in the past nine trading periods.

The delayed green line will represent the closing price in 26 periods in the past. This will help provide a better perspective on trend monitoring.

  • The first band is calculated by averaging the blue and red lines.
  • The second band will be calculated by calculating the highest and lowest maximum during the last 52 trading periods.

The final step is to take the trend line and transform it 26 periods ahead. After adding all these lines together, you will have a complete overview of the market. From here you can decide if there is a strong trend to justify opening a new position.

Bollinger Bands – Trend indicator to follow

Bollinger bands are the best trend after indicator that measures the volatility of any market. It is also the third indicator of several indicators of our best strategy.

Buying and selling based on Bollinger Bands can be a very effective trading strategy, especially when used in combination with other technical indicators.

Finally, the configuration of the chart should be similar to the chart above.

Without further ado, let’s see how you can trade effectively with the help of various technical indicators and earn consistent profits in the smartest way.

 

 

Multi-indicator strategy

For our strategy, you need to use three to four technical indicators to trade successfully. These indicators include the relative strength index, the Ichimoku cloud, Bollinger bands and the balance volume. These indicators are collectively responsible for aspects of trend, timing and magnitude of the trade, to which all traders must pay close attention.

Before proceeding, we always recommend taking a piece of paper and a pen and writing down the rules of the trading strategy. For this article, we look at the buy side.

Note * This strategy can be used in any period; so go ahead and apply it to your time frame.

Step 1: the price must break and close above the average Bollinger band

The first step is very easy!

In fact, the whole strategy is so easy to understand that you can start trading it right away.

The first trade confirmation we need is for the price to break and close above the middle Bollinger band. Once this trading condition is verified, we can check the other indicators to add more convergence to our trading signal.

Let’s see what the RSI indicator has to say about the price action.

Watch below…

Step 2: wait until the RSI indicator trades above level 50, if you haven’t already

Everything we do in the Trading Strategy Guides makes sense! We always try to understand how to correctly interpret the operation of any technical indicator.

At this stage, we want to find an agreement between what Bollinger Bends is saying and the reading of the RSI price. Therefore, the escape can be confirmed if the moment is behind the change.

Normally, an RSI reading above level 50 is considered a positive moment, while an RSI reading below level 50 is considered a negative moment.

Note * You will not always see the RSI break above the 50 level at the same time as the price rises above the average BB. Sometimes we have to wait longer for the positive momentum.

Step 3: Wait for the OBV indicator to rise. Buy in the market when you see the volume confirming the price.

The last trade condition before pulling the trigger is again easy to understand. We want to trade with smart money. In this sense, we look for evidence that the trade we want as real purchasing power is behind it.

We can see that the real volume only appeared later. It is important to be patient and wait until the exact trading conditions are met before placing a long trade.

The next important thing we need to determine for our scaling down strategy is where to place our protective stop loss.

Watch below…

Step 4: hide your stop loss protection below the lower Bollinger band

Knowing where to place the protective stop loss is just as important as knowing when to enter the market.

The logical place to hide your protective stop loss is below the lower Bollinger band. A break below the lower BB will invalidate our trade idea and minimize our losses.

Last but not least, we also need to define a profit level for our multi-indicator strategy, which takes us to the final step.

Watch below…

Step 5: Take profit when the price drops below the lowest BB

Our strategy for profitability analyzes only an indicator to indicate a possible exit zone. If we await the confirmation of various indicators, it is possible that we will return some of our profits.

In that sense, the best way to profit is if we see the price reverse. A break below the lower Bollinger band is a good sign for a possible reversal, so we want to take our profits.

Note ** the above was an example of a BUY negotiation using different technical indicators. Use the same rules for a SALE negotiation – but in reverse. In the figure below you see a real example of SELL trade.

We chose these indicators because as a group they can help you protect each other’s weaknesses while maintaining each of your strengths. If these indicators provide conflicting buy or sell signals – something they sometimes do – you need to decide whether you want to open a riskier position.

On the other hand, if each of these indicators confirms the signals sent by the others, you can have much more confidence in your business. If you are faced with ‘green lights’ at the same time, feel free to be a little more aggressive with your business.

Conclusion

You need to spend the necessary time and learn the meaning of each technical indicator. No indicator will deliver 100% win rates, so don’t be the fairy hunter. No one can predict the market with exact certainty in the $6 trillion dollar Forex market.

However, if you follow our best combination of technical indicators, you can increase your chances of winning more often than failing the market. You should keep in mind that all indicators are based on the price of the past, so only a multi-indicator strategy can help you predict the future.