General Principles of Technical FOREX Tools
As you select technical analysis tools, keep in mind:
- Most tools can be classified as designed for either trading (sideways) or trending markets. Thus, the majority of traders use similar tools although they may assemble them in somewhat unique toolboxes. The majority almost always loses, at least in the long run.
- Be certain you know what a technical tool is doing and what it is measuring before adding it to your toolbox. Numbers measure, and they are very useful, but they are not magic.
- Seek synergy.
- Avoid overkill. Keep it simple!
[caption id="attachment_13183" align="aligncenter" width="550"] Charts or Indicators?[/caption]
Tip: To avoid offending RS aficionados, the author must mention that this indicator sometimes helps spot tops and bottoms when a new high (or low) in prices is not matched by a new high (or low) in the RS indicator.
It is quite often possible to eliminate indicators because you can more easily see the same information on a chart. This is the thesis of Charles Goodman's market environment (ME) charting technique. See Tools for Traders, for more on ME. There is a great deal of overlap in what the dozens of technical indicators measure. You can surely cover the bases with no more than three or four of them.
Tip: When studying a new indicator ask: "Is this good for trading markets or for trending markets?"
By Michael Duane Archer