Combining various indicators to get the best results when trading is obviously in your best interest. You don’t want to rely on a single indicator as this is prone to error when you look only at the data that they provide.
Each indicator has been specifically formulated to make sure it gives you the data that you are interested in, but that doesn’t mean that you should think that your job is done just because you have reviewed a single indicator. In reality, you need to look at several indicators to get the complete picture of what is going on.
Below, we’ll check out a couple common indicator combinations to give you a feel for how traders can slap more than one indicator on their chart for better analysis.
Combining the RSI & MACD Indicators
Combining indicators can give traders better insight into market movement, since the combinations provide specific signals that, together, can corrborate a trade idea. This is a big reason why people combine the RSI and MACD indicator together at times. It helps them to see when two indicators are moving in tandem with one another. In the case of the RSI and the MACD indicators, both are trying to spot the strength of momentum of a given trade at any given time.
A sell signal from this combination may be present when the RSI has reached overbought territory and the MACD has a downwards cross between its two lines. When you see both of those indications happen at the same time, it is a bearish signal.
The opposite is true when you see the inverse happen. RSI in oversold territory and an upward cross on the MACD may be a good indication that it is time to buy.
You can back up your work more strongly as a trader when you have multiple indicators to rely on at the same time. You shouldn’t put all of your eggs in one basket with the indicators ever, and you should always make sure you confirm you hunches by looking at how various indicators interact with one another.If you spot what you think is a buy or sell signal, try to confirm it with multiple indicators before making your move.
Combining Bollinger Bands and Stochastic Indicators
Two indicators that you may choose to use together are the Bollinger Bands and Stochastic. They are complimentary indicators in that they are both meant to be used to identify when a currency pair is overbought or oversold at this given moment. When the price of your pair reaches the top of the Bollinger Band and it is also over 80 on the Stochastic, you are getting two sell signals at the same time. That is a fairly strong indicator that you may want to pull the trigger on a sell order.
If you spot the pair hitting the bottom of the Bollinger Bands and the Stochastic is below the 20 mark, then you may be looking at any oversold currency pair, and it could be time to place a buy order.