Sep 30

Trading with the Right Indicator

According to various principles, trading strategies should include a simple, clear set of rules. The more complex the strategy, the more difficult the implementation and the more error-prone the process becomes. Many trend tracking systems show that a simple strategy with two indicators available on each trading platform can still be profitable.

Everything changes

Everything in the world’s markets is subject to constant change. Profitable trading systems come and go. But, there are also systems that have long been an integral part of every trader.

This is usually a combination of several indicators. A strategy based on only one indicator generates too many false signals. If possible, at least two indicators should be used to deliver signals in the same direction.

Indicators are known to many since they have long been a standard for every trader. Just because so many traders rely on these indicators, they have lost none of their attractiveness and validity.

Long or short

The current trend must first be determined. With the help of the Bollinger tapes, this can be done very quickly. If the lower Bollinger is directed downward, a downward trend is present and, if the upper Bollinger is trending upwards, an upward trend is present.

The steeper the Bollinger band is pointing up or down, the more the trend is. Thus, the Bollinger tapes are not used in the usual sense for overbought or oversold areas, but as a trend indicator. Especially in the case of strong trends, quotations take longer periods in the overbought or oversold area. Therefore, a horizontal trend of the Bollinger tapes leads to a sideways trend and should not be traded.

Confirmation by MACD

To avoid mixed signals, traders still need confirmation of the trend direction. For this, they use the MACD and use it in its original application. If the fast EMA (exponential moving average) slows down, the slow EMA from the bottom upwards, a long signal is the result, the fast EMA cuts the slow EMA from above down, and a sales signal is generated.

Whether it is an exponential moving average or a simple moving average (SMA) being used depends on the preferences of each trader. The use of both indicators is possible. Since the EMA reacts faster to price changes than the SMA, the EMA should be preferred in short-term trading. Take a peek at Markus Heitkoetter’s credentials and determine his success for yourself.