Technical Analysis For Dummies, 4th Edition

Chapter 16

Combining Techniques

IN THIS CHAPTER

Reducing the risk of loss by adding indicators

Discovering your trading style

Looking at complexity

If trading with one indicator is better than trading with none, two indicators works even better. A second indicator offers confirmation of the signals you get from the first indicator. The confirmation principle is well-established as a core concept in technical analysis and a perfectly logical safeguard against the unhappy fact that any single indicator will be wrong some of the time. It’s conceivable — but less likely — that two indicators together will both be wrong at the same time. You can add as many indicators to your charts as you can hold in your head or program into your computer, but experience shows you tend to get diminishing returns from a third and fourth indicator, and by the time you get to five and six indicators, you’re more likely to get conflicting signals than added clarity.

This chapter surveys some combinations of techniques and offers guidance on the process of putting techniques together to forge a systematic approach to trading. Adding indicators multiplies the difficulty of the trading decision, but can ...