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The vast majority of technical traders do it wrong when it comes to choosing how many Trading Indicators to have on the chart.
Their trading performance fails miserably, not because they are bad traders but rather because they either have too much information or not at all.
In fact, there are two main misconceptions which are very popular among traders but are totally wrong and end up negatively affecting a trader’s performance.
You are about to discover what they are and how you can fix them.
Professional Traders don’t need indicators [WRONG]
The first common misconception is that professional traders don’t need any indicator at all.
Unfortunately, though, professional traders are not some sort of oracles which can systematically predict the markets just by looking at a naked chart.
Many traders venerate them just like they could make millions at every blink of an eye because they are believed to have acquired all the knowledge to trade flawlessly.
That’s the biggest lie you could hear!
How many times you come across a perfect pattern, a nice wedge or a beautiful consolidation…
You get into the trade!
And you get stopped out shortly after.
Unfortunately, it happens too many times…
That’s when you realise that the theory in the books and the reality in the Markets are two separate things. Not that the theory is wrong, but it’s just too perfect to be true.
We all know that the Markets can do whatever they want, whenever they want. No perfect pattern or beautiful consolidation will ever contradict this.
It is then straightforward to understand that every technical trader must always be supported by some quality indicators, even the pros.
Beginner Traders need as many indicators as they can [WRONG]
It’s in human nature to surround yourself with the most tools when you don’t know how to do something.
It then feels less impossible and more achievable just because you believe to ultimately work it out with the combination of all the tools.
That’s when you find yourself with a chart with as many as five, six, even ten indicators working all together for the ultimate setup.
Unfortunately, the more you have to assess, the more confusion it will add, pure and simple.
See the chart below.
With six – very common – indicators the chart becomes so cluttered that it’s practically impossible to identify any opportunity.
EURUSD 15m | 6 indicators
Trading becomes a gamble because, at every point in time, you have half of the indicators in a bullish setup and the other half showing some bearish weakness.
What you rather need is to identify only those few essential indicators you can’t do without and remove all the additional clutter.
It might sound hard to do but it will pay off.
All Traders need a few, good indicators [CORRECT]
Rely on the books and you will fail. Add many fancy indicators to your chart and you will fail too.
A quote attributed to Leonardo da Vinci says:
Simplicity is the ultimate sophistication
It’s true. It’s tough but you must do it if you want to succeed.
Pick a few quality indicators – it could be one, two or maybe three (no more than that!).
See the chart below.
Do you recognize it?
It’s the same chart that we just discussed above!
Using just two indicators (the Breakout Pivotal Bars and the Sentiment Index) the chart is clean and the price action becomes simple to read. In fact, it is really straightforward to identify two great sell opportunities.
Same chart, totally different approach and totally different performance as well!
So, what’s the takeaway?
Choose the indicators that align the most with your strategy, understand and test them and then exploit them to their most potential.
Trade them consistently and build confidence with time.
If necessary, make small adjustments and then retest them.
Keep iterating and you will achieve your personal ultimate setup.
Once you do, the Markets won’t scare you anymore and they will be there for you, every single day.