How to choose the best combination of Forex indicators
The goal is to pick the best indicators set. The challenge is to combine indicators in a smart way. This means that indicators should deliver different type of information about the market and confirm each other rather than duplicate signals.
When two or more indicators provide identical information about prices, it hardly ever helps trading better; and while Forex traders call it "signal confirmation", it is in reality could be the same type of data, and should be called "duplication", rather than "confirmation". When money is at stake, the problem becomes serious…
If you are randomly choosing indicators for technical analysis, chances are you’ll pick some with similar studies. How to avoid this? First of all traders should know what type of indicator they use. There are general categories of indicators:
Traders should avoid using too many indicators from the same category. There is also a simple method of identifying similar indicators. By setting up chosen indicators on a chart, you will be able to basically see a similar pattern of indicators behavior. If they rise and fall in almost similar intervals, they are most likely identical in the type of data they provide.
Here is an example of indicators showing similar data:
Note that Momentum indicator, RSI and Ultimate Oscillator: all behave in a distinctive similar pattern. For quality signals you would need to choose only one of them and exclude others.
Here is an example of indicators providing different type of data:
These simple rules of choosing the best set of indicators are used by experienced Forex traders for quality market research and trading.
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